Characteristic of Implied Volatility of CDSwaptions in ITraxx Market and its Relationship to Stock Market

33 Pages Posted: 13 May 2009

See all articles by Ramaprasad Bhar

Ramaprasad Bhar

UNSW, Risk and Actuarial Studies

David B. Colwell

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Peipei Wang

Deakin University

Date Written: May, 11 2009

Abstract

We investigate the characteristic of implied volatility in CDS market and its relationship with stock market within European area. The comprehensive analysis show that stock market weakly leads CDS market on daily changes but for implied volatility, the stock market leads CDS market, and VECM analysis show that only the stock market contribute to price discovery. For sub-investment grade entities, the interactivities between implied volatility of CDS market and implied volatility of stock market are stronger especially during the recent credit crunch period.

Suggested Citation

Bhar, Ramaprasad and Colwell, David B. and Wang, Peipei, Characteristic of Implied Volatility of CDSwaptions in ITraxx Market and its Relationship to Stock Market (May, 11 2009). Available at SSRN: https://ssrn.com/abstract=1402984 or http://dx.doi.org/10.2139/ssrn.1402984

Ramaprasad Bhar (Contact Author)

UNSW, Risk and Actuarial Studies ( email )

Sydney, NSW 2052
Australia

David B. Colwell

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 (2) 9385 5851 (Phone)
+61 (2) 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peipei Wang

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia
61-03-92446906 (Phone)

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