This index reflects the market view of the future level of the market portfolio diversification. This study proposes an innovative methodology for backing-out implied correlation measures from index options.The methodology is applied to the Dow Jones Industrial Average index and the statistical properties and the dynamics of the proposed implied correlation measure are … [Read more...]
Correlation Index : The Basic Concept
This is an "Average" correlation derived from the Basket IV formula. The "Basket IV" can be derived from the actual market prices of the Index option. In the term on the right, you get the correlation of every existing pair of stock component. If you replace these corr(i,j) terms by only one term CORR assuming they are the same, then you can extract this in front of the … [Read more...]