International Market Volatility Indexes: A Study on Vx1, Vdax and VIX

26 Pages Posted: 23 May 2003

See all articles by Sofiane Aboura

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Christophe Villa

Audencia Nantes School of Management

Date Written: June 1999

Abstract

It is well known that finding an accurate forecast of future volatility turns out to be very useful for pricing derivatives, hedging strategies or for the calculation of the Value at Risk. The market's assessment of the underlying asset's volatility as reflected in the option price is known as the implied volatility of the option. Based on teaching derived from these recent papers written on the forecasting ability of implied volatility, this paper deals with the accuracy of international volatility indexes (VX1, VDAX and VIX). First, we find that VX1, VIX and VDAX are good tools for predicting future realized volatility and we also show that past implied volatility informs more about future implied volatility than past realized volatility. We, also, embed each of the implied volatility indexes as an exogenous term in the GARCH variance equation and find that all of them dominates the GARCH terms. Second, We also compute parameters of a stochastic volatility model using implied volatility indexes. Third, we study the transmission mechanisms of implied volatility indexes.

Keywords: GARCH model, Implied Volatility Index, Risk Management

JEL Classification: G13, G14, C53

Suggested Citation

Aboura, Sofiane and Villa, Christophe, International Market Volatility Indexes: A Study on Vx1, Vdax and VIX (June 1999). Available at SSRN: https://ssrn.com/abstract=394420 or http://dx.doi.org/10.2139/ssrn.394420

Sofiane Aboura (Contact Author)

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

Christophe Villa

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

HOME PAGE: http://www.audencia.com/?id=970

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