The Information Content of Implied Co-Volatility and Co-Variance Swap
This paper discusses quanto spread trading strategy and introduces a simple model that allows the co-variance to be implied from the quanto spread. A synthetic co-variance swap is then constructed with the implied co-variance as the fixed rate. This paper also provides an empirical analysis over the...
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2013
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/3423 |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | This paper discusses quanto spread trading strategy and introduces a simple model that allows the co-variance to be implied from the quanto spread. A synthetic co-variance swap is then constructed with the implied co-variance as the fixed rate. This paper also provides an empirical analysis over the period spanning January 2005 through December 2010. Our empirical findings suggest that the proposed co-variance swap is fair to both the buyer and the seller, which is consistent with the evidence that the implied co-volatility can forecast future co-volatility. |
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