CDXIG Index, VIX and the Swap Curve Slope: A Study in Cross-Market Statistical Arbitrage
50 Pages Posted: 7 Oct 2008
Date Written: October 6, 2008
This article tries to track the CDXIG index 5y spreads by studying the effect of Equity Index Volatility (by employing VIX levels) and 5/10 US swap curve slope (calculated as the difference between the 10yr and 5yr swap rates) on the index spreads by employing an OLS regression within the premise of a partial adjustment model. After a through examination of the interplay of the chosen variables with the Index spreads, an identification of major VIX level/Swap curve slope regimes is made to help identify/quantify a long-short statistical arbitrage trading strategy.
Keywords: Partial adjustment model, Statistical arbitrage
JEL Classification: C15, C22, C32, C51, C52, C53
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