nep-cfn New Economics Papers
on Corporate Finance
Issue of 2012‒01‒03
two papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Coherent Model-Free Implied Volatility: A Corridor Fix for High-Frequency VIX By Torben G. Andersen; Oleg Bondarenko; Maria T. Gonzalez-Perez
  2. Funding Self-Employment: The Role of Consumer Credit By Christoph Kneiding; Alexander S. Kritikos

  1. By: Torben G. Andersen (Kellogg School of Management; Northwestern University and CREATES); Oleg Bondarenko (Department of Finance (MC 168), University of Illinois at Chicago); Maria T. Gonzalez-Perez (Colegio Universitario de Estudios Financieros (CUNEF))
    Abstract: The VIX index is computed as a weighted average of SPX option prices over a range of strikes according to specific rules regarding market liquidity. It is explicitly designed to provide a model-free option-implied volatility measure. Using tick-by-tick observations on the underlying options, we document a substantial time variation in the coverage which the stipulated strike range affords for the distribution of future S&P 500 index prices. This produces idiosyncratic biases in the measure, distorting the time series properties of VIX. We introduce a novel “Corridor Implied Volatility” index (CX) computed from a strike range covering an “economically invariant” proportion of the future S&P 500 index values. We find the CX measure superior in filtering out noise and eliminating artificial jumps, thus providing a markedly different characterization of the high-frequency volatility dynamics. Moreover, the VIX measure is particularly unreliable during periods of market stress, exactly when a “fear gauge” is most valuable.
    Keywords: VIX, Model-Free Implied Volatility, Corridor Implied Volatility, Time Series Coherence
    JEL: G13 C58
    Date: 2011–11–30
  2. By: Christoph Kneiding; Alexander S. Kritikos
    Abstract: This paper investigates whether self-employed households use consumer loans - in<br /> particular instalment loans and overdrafts - to finance business activities. Controlling<br /> for financial and non-financial household variables we show that self-employed<br /> households particularly use personal overdrafts significantly more often than<br /> employee households. When analyzing the correlation between consumer loan takeups<br /> and consumption of self-employed in comparison to employee households, we<br /> find first evidence that overdrafts are used by self-employed to finance their business<br /> as well. This indicates that intermingling constitutes a financing strategy when<br /> regular business loans might not be accessible.
    Keywords: Small Business Finance, Consumer Credit, Financial Intermingling
    JEL: G32 D12 D14
    Date: 2011

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