Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260171 
Authors: 
Year of Publication: 
2015
Series/Report no.: 
Working Paper No. 2015:34
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
We show how one can back out implied forward volatility term structures from credit default swap spreads. Such forward stock volatility term structures are useful for instance in forward start option pricing. We find the term structure to be downward-sloping, and the credit market's volatility forecasts tend to vary more across time than across maturities. Long-term volatility expectations, in turn, are found to be low and stable while short-term expectations are higher and more volatile. The volatility expectation's mean-reversion rate, finally, indicates that the credit market expects volatility shocks in the equity market to last for several years.
Subjects: 
CDS
implied volatility term structure
forward volatility
forward start options
JEL: 
G01
G10
Document Type: 
Working Paper

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