Does the world smile together? A network analysis of global index option implied volatilities

Chen, Jing; Han, Qian; Ryu, Doojin; Tang, Jing

doi:10.1016/j.intfin.2021.101497

Cited by 12 publications

(3 citation statements)

References 77 publications

(70 reference statements)

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“…A larger distance between CoVaR and VaR of the same confidence level indicates that the spillover effect is more significant. Such high sensitivity to quantile selection and strong spillover significance are evident in almost all groups, though with varying degrees, consistent with observations of complex market movements [ 14 , 15 , 40 , 61 ]. Among the groups considered, the figures of the group of Brazil show the least dispersion, yet they still pass the test of spillover significance, as shown in Table 4 .…”

Section: Resultssupporting

confidence: 85%

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Assessing stock market contagion and complex dynamic risk spillovers during COVID-19 pandemic

Xiao²,

Zheng³

2023

Nonlinear Dyn

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A very important area where COVID-19 has seriously disrupted is the global financial markets, where stock markets have experienced great turmoil. To shed light on the nature of this turmoil and to characterize nonlinear dynamics in inter-market risk transmission, we formally test the existence of inter-stock market contagion, identify the main channel once the presence of contagion has been established, and assess the upside and downside risk spillovers dynamically focusing on complexity during pre-COVID-19 and post-COVID-19 periods. Applying multiple measures including time-varying conditional value-at-risk based on copula theory, and sample entropy methods, considering a sample covering seven countries (USA, UK, France, Germany, Japan, Brazil, China) during the period from 4 January 2019 to 30 December 2020, we show that contagion is widely present among analysed stock markets with only a few exceptions and that “portfolio rebalancing” as opposed to “wealth constraint” occurs more as the main channel of transmission. All market pairings exhibit significant bilateral upside and downside spillovers after the outbreak of COVID-19. A significant shift in complexity of risk spillover dynamics is evident for most recipient countries following the shock of COVID-19, among which all but China display a downward shift. The findings of this paper could help regulators, politicians, and portfolio risk managers amid the uncertainty created by the COVID-19 pandemic.

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Section: Resultssupporting

confidence: 85%

“…4a and b, where the upper triangular of each matrix shows the values of τ [Eq. (15)] or ρ [Eq. ( 16)], while the lower triangular shows the corresponding p-values.…”

Section: Contagion and Channelsmentioning

confidence: 99%

Assessing stock market contagion and complex dynamic risk spillovers during COVID-19 pandemic

Xiao²,

Zheng³

2023

Nonlinear Dyn

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“…Accordingly, it is not absolutely appropriate to assume that information flow between energy commodities returns and implied volatilities within the energy market is negative and significant across investment horizons of a stressed market outcome. Thus, despite the fact that information flow or spillover effects between implied volatilities and other financial assets are prone to being negative, and quantile or scale dependent (Boateng et al, 2021;Pham and Do, 2022;Asafo-Adjei et al, 2022;Li, 2022;Chen et al, 2022;Amoako et al, 2022), investors need to be informed on the specific period assets redeployment, rebalancing, reallocation, to mention a few, is appropriate to enhance diversification or safe haven benefits in a stressed market outcome. It can be concluded that integration among energy commodities should not be entirely ignored but considered in tandem with implied volatilities, especially during markets stress of information flow (Table 3).…”

Section: Resultsmentioning

confidence: 99%

Quantifying information transfer between Commodities and Implied Volatilities in the Energy Markets: A Multi-frequency Approach

Qabhobho

Asafo−Adjei

Owusu

et al. 2022

IJEEP

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We investigate the multi-scale information transmission between two implied volatilities in the energy markets (crude oil volatility and volatility in the energy market) and energy commodities returns (global energy commodity, brent, heating oil, natural gas and petroleum). The Complete Ensemble Empirical Mode Decomposition with Adaptive Noise (CEEMDAN) based Rényi transfer entropy approach is employed to accomplish the research objective. The study’s outcome underscores that information flow between implied volatilities and energy commodities is negative with significance being scale-dependent. Especially, significant negative information flow is found at specific intrinsic mode functions (IMFs) such as IMF1, and from IMFs 6-9 suggesting short-, upper medium and long-term energy markets dynamics. Comparatively, we find profound negative information flow with the crude oil implied volatility than the volatility in the entire energy market implying the former’s strong hedging benefits. Investors and policymakers should have knowledge about the dynamics of implied volatilities, particularly, the crude oil implied volatility when designing strategies for the energy commodities markets.

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Linear extrapolation and model-free option implied moments

Lee,

Ryu

2024

Borsa Istanbul Review

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Does the world smile together? A network analysis of global index option implied volatilities

Cited by 12 publications

References 77 publications

Assessing stock market contagion and complex dynamic risk spillovers during COVID-19 pandemic

Assessing stock market contagion and complex dynamic risk spillovers during COVID-19 pandemic

Quantifying information transfer between Commodities and Implied Volatilities in the Energy Markets: A Multi-frequency Approach

Linear extrapolation and model-free option implied moments

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