Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260130 
Authors: 
Year of Publication: 
2014
Series/Report no.: 
Working Paper No. 2014:34
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
This study discusses how to compute and forecast long-term stock return volatilities, typically with a 5-year horizon or longer, using credit derivatives, and how such volatilities can be used in different areas ranging from the valuation of employee stock options and other long-term derivatives to the construction of market-based fear gauges in selected countries or market segments. In the empirical part of the paper I focus on the European financial sector and find the credit-implied volatilities and fear gauges to behave well. The forecasting accuracy of the credit-implied volatilities is found to be better than that of horizon-matched historical volatilities.
Subjects: 
credit default swaps
implied volatility
CreditGrades
VIX
fear gauge
long-term forecast
JEL: 
G10
Document Type: 
Working Paper

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