Analysis of transmission of conditional volatility from market risk factors

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Antonio Ruben Santillan Pashma


This article aims to understand the transmission of volatility from the main market indicators of the European financial system, towards market interest rates, focusing on the prices of the swap with maturity of one year and payments of three months as endogen variable and the three main indexes of the European market as CAD, DAX3, and IBEX35, as an exogenous variable. The exogenous will absorb all the necessary information from the market agents as companies, banks, investments funds, or from externals disturbances as European Central Banks and will affect the levels and the slope of the swap prices.  Introduction. SWAP is the financial instrument that will be employed to analyze the changes of the volatility in the market because it is the bigger derivative inside of the group of Fixed Income Assets. It is with the greatest depth and liquidity being one of the best instruments for developing market strategies of investment. Aim. Analyst the transmission of volatility from the systematic risk, represented by indices of the market, through the swap prices. Results. DAX30 and CAD transference of volatility are positive, in the particular case of the CAD the effect of transference is significantly positive and extended because the coefficient is greater than 1. IBEX35 provides an extended negative correction. Meaning for every one percentage point change in the IBEX35, It can be expected on average that the volatility of the swap will move in -4.19 percentage point. Conclusion: The slope of the curve o the endogen variables will be determined by the transmission of the volatility from the exogenous variables and the correlation level of the endogenous will adopt with each index


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Santillan Pashma, A. R. (2021). Analysis of transmission of conditional volatility from market risk factors. ConcienciaDigital, 4(2), 345-359.


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