Title

The Information Content of Implied Co-Volatility and Co-Variance Swap

Publication Type

Journal Article

Publication Date

2013

Abstract

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.

Keywords

quanto futures, covariance, covolatility, CME Nikkei

Discipline

Finance and Financial Management

Research Areas

Quantitative Finance

Publication

Review of Futures Markets

Volume

21

Issue

1

First Page

49

Last Page

75

ISSN

1933-7116

Publisher

Kent State University

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