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Fink, Holger; Geppert, Sabrina (2017): Implied correlation indices and volatility forecasting. In: Applied Economics Letters, Vol. 24, No. 9: pp. 584-588
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Abstract

Implied volatility indices are an important measure for market fear' and well-known in academia and practice. Correlation is still paid less attention even though the CBOE started to calculate implied correlation indices for the S&P500 in 2009. However, the literature especially on cross-country dependencies and applications is still quite thin. We are closing this gap by constructing an implied correlation index for the DAX and taking a deeper look at the (intercontinental) relationship between equity, volatility and correlation indices. Additionally, we show that implied correlation could improve implied volatility forecasting.