The VIX as Stochastic Volatility for Corporate Bonds

Autor:	Park, Jihyun, Sarantsev, Andrey
Rok vydání:	2024
Předmět:	Quantitative Finance - Statistical Finance Statistics - Applications 62J05 62M10 91B70 91G30
Druh dokumentu:	Working Paper
Popis:	Classic stochastic volatility models assume volatility is unobservable. We use the Volatility Index: S\&P 500 VIX to observe it, to easier fit the model. We apply it to corporate bonds. We fit autoregression for corporate rates and for risk spreads between these rates and Treasury rates. Next, we divide residuals by VIX. Our main idea is such division makes residuals closer to the ideal case of a Gaussian white noise. This is remarkable, since these residuals and VIX come from separate market segments. Similarly, we model corporate bond returns as a linear function of rates and rate changes. Our article has two main parts: Moody's AAA and BAA spreads; Bank of America investment-grade and high-yield rates, spreads, and returns. We analyze long-term stability of these models. Comment: 12 pages, 2 figures, 8 graphs. Keywords: stochastic volatility, ergodic Markov process, stationary distribution, autoregression, kurtosis
Databáze:	arXiv
Externí odkaz:	http://arxiv.org/abs/2410.22498 Zobrazit plný text záznamu View this record from Arxiv