Abstract
The success of a trading strategy can be significantly enhanced by tracking accurately the implied volatility changes, which refers to the amount of uncertainty or risk about the degree of changes in a market index. This fosters the need for accurate estimation of the time-synchronization profile between a given market index and its associated volatility index. In this chapter, we advance existing solutions, which are based widely on the typical correlation, for identifying this temporal interdependence. To this end, cross-recurrence plot (CRP) analysis is exploited for extracting the underlying dynamics of a given market and volatility indexes pair, along with their time-synchronization profile. However, CRPs of degraded quality, for instance due to missing information, may yield a completely erroneous estimation of this profile. To overcome this drawback, a restoration stage based on the concept of matrix completion is applied on a corrupted CRP prior to the estimation of the time-synchronization relationship. A performance evaluation on the S&P 500 index and its associated VIX volatility index reveals the superior capability of our proposed approach in restoring accurately their CRP and subsequently estimating a temporal relation between the two indexes even when \(80\,\%\) of CRP values are missing.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
A put option gives the purchaser the right, but not the obligation, to sell a security for a specified price at a certain time. A call option is a right to buy the same.
- 2.
- 3.
References
R. Mantegna, H. Stanley, An Introduction to Econophysics (Cambridge University Press, 2000)
N. Johnson, P. Jefferies, P. Ming Hui, Financial Market Complexity (Oxford University Press, 2003)
Y. Kim, C. Nelson, J. Fin. Econ. 12(2), 307 (2014). doi:10.1093/jjfinec/nbt014
K. French, G. Schwert, R. Stambaugh, J. Fin. Econ. 19(1), 3 (1987). doi:10.1016/0304-405X(87)90026-2
P. Giot, J. Portf. Manag. 31(3), 92 (2005). doi:10.3905/jpm.2005.500363
B. Menachem, J. Shu, J. Zhang, J. Fut. Mark. 30(9), 809 (2010). doi:10.1002/fut.20448
I. Vodenska, W.J. Chambers, Understanding the Relationship between VIX and the S&P 500 Index Volatility, in Proceedings of the 26th Australasian Finance and Banking Conference (2013)
R.E. Whaley, J. Portf. Manag. 35(3), 98 (2009). doi:10.3905/JPM.2009.35.3.098
B. Awartani, V. Corradi, Int. J. Forecast. 21(1), 167 (2005). doi:10.1016/j.ijforecast.2004.08.003
S.-M. Chiang, The Relationships between Implied Volatility Indexes and Spot Indexes, in Proceedings of the International Conference on Asia Pacific Business Innovation and Technology Management, Procedia—Social and Behavioral Sciences, vol. 57, p. 231 (2012)
S. Ercetin, S. Banerjee, Chaos and Complexity Theory in World Politics (IGI Global, 2014)
B.S. Lee, J. Bank. Finance 34(6), 1257 (2010). doi:10.1016/j.jbankfin.2009.11.023
B.S. Lee, D. Ryu, Econ. E-journal 7, (2013). doi:10.5018/economics-ejournal.ja.2013-3
J. Eckmann, K. Oliffson, D. Ruelle, Europhys. Lett. 4(9), 973 (1987). doi:10.1209/0295-5075/4/9/004
J. Zbilut, C. Webber, J. Appl. Physiol. 76(2), 965 (1994)
J. Zbilut, C. Webber, Phys. Lett. A 171(3–4), 199 (1992). doi:10.1016/0375-9601(92)90426-M
L. Trulla, A. Giuliani, J. Zbilut, C. Webber, Phys. Lett. A 223(4), 255 (1996). doi:10.1016/S0375-9601(96)00741-4
J. Gao, Phys. Rev. Lett. 83(16), 3178 (1999). doi:10.1103/PhysRevLett.83.3178
N. Marwan, N. Wessel, U. Meyerfeldt, A. Schirdewan, J. Kurths, Phys. Rev. E 66(2), 026702 (2002). doi:10.1103/PhysRevE.66.026702
N. Marwan, J. Kurths, Phys. Lett. A 302(5–6), 299 (2002). doi:10.1016/S0375-9601(02)01170-2
A. Antoniou, C. Vorlow, Neur. Net. World 10, 131 (2000)
F. Strozzi, J.-M. Zaldivar, J. Zbilut, Phys. A 376, 487 (2007). doi:10.1016/j.physa.2006.10.020
A. Fabretti, M. Ausloos, Int. J. Mod. Phys. C 16(5), 671 (2005). doi:10.1142/S0129183105007492
P. Crowley, Eur. Phys. J. Sp. Top. 164(1), 67 (2008). doi:10.1140/epjst/e2008-00835-3
N. Bigdeli, K. Afshar, Phys. A 388, 1577 (2009). doi:10.1016/j.physa.2009.01.003
K. Guhathakurta, N. Marwan, B. Bhattacharya, A. Chowdhury, Understanding the Interrelationship Between Commodity and Stock Indices Daily Movement Using ACE and Recurrence Analysis, Translational Recurrences (Springer International Publishing, 2014). doi:10.1007/978-3-319-09531-8_13
P. Addo, Coupling Direction of the European Banking and Insurance Sectors using Inter-System Recurrence Networks, Documents de travail du Centre d’Economie de la Sorbonne (2015). ISSN: 1955-611X.2015
E. Candès, B. Recht, Found. Comput. Math. 9(6), 717 (2009). doi:10.1007/s10208-009-9045-5
R. Whaley, J. Deriv. 1(1), 71 (1993). doi:10.3905/jod.1993.407868
J. Noh, R. Engle, A. Kane, J. Deriv. 2(1), 17 (1994). doi:10.3905/jod.1994.407901
W.-Y. Lee, C.-X. Jiang, D. Indro, J. Bank. Finance 26(12), 2277 (2002). doi:10.1016/S0378-4266(01)00202-3
Standard & Poor’s: S&P 500 Factsheet. Accessed 30 Nov 2015 (http://us.spindices.com/indices/equity/sp-500)
CBOE: The VIX White Paper, Chicago Board Options Exchange. http://www.cboe.com/micro/vix/. Accessed 30 Nov 2015
R. Whaley, J. Portf. Manag. 26(3), 12 (2000). doi:10.3905/jpm.2000.319728
J. Iwanski, E. Bradley, Chaos 8(4), 861 (1998). doi:10.1063/1.166372
N. Marwan, M. Thiel, N.R. Nowaczyk, Nonlinear Process. Geophys. 9, 325 (2002). doi:10.5194/npg-9-325-2002
P. Crowley, A. Schultz, A New Approach to Analyzing Convergence and Synchronicity in Growth and Business Cycles: Cross Recurrence Plots and Quantification Analysis, Bank of Finland Research Discussion Papers 16 (2010)
P.M. Addo, M. Billio, D. Guégan, North Am J. Econ. Fin. 26, 416 (2013). doi:10.1016/j.najef.2013.02.014
M.B. Kennel, R. Brown, H.D. Abarbanel, Phys. Rev. A 45, 3403 (1992). doi:10.1103/PhysRevA.45.3403
R. Little, D. Rubin, Statistical Analysis with Missing Data, 2nd edn. (Wiley, 2002)
E. Candès, T. Tao, IEEE Trans. Inform. Theory 56(5), 2053 (2010). doi:10.1109/TIT.2010.2044061
J.-F. Cai, E. Candès, Z. Shen, SIAM J. Optim. 20(4), 1956 (2010). doi:10.1137/080738970
C. Peiying, W. Yuandi, A New Fourth-Order Equation Model for Image Inpainting, in Proceedings of 6th International Conference on Fuzzy Systems and Knowledge Discovery, Shanghai, China, 14–16 Aug 2009
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2016 Springer International Publishing Switzerland
About this paper
Cite this paper
Tzagkarakis, G., Dionysopoulos, T. (2016). Restoring Corrupted Cross-Recurrence Plots Using Matrix Completion: Application on the Time-Synchronization Between Market and Volatility Indexes. In: Webber, Jr., C., Ioana, C., Marwan, N. (eds) Recurrence Plots and Their Quantifications: Expanding Horizons. Springer Proceedings in Physics, vol 180. Springer, Cham. https://doi.org/10.1007/978-3-319-29922-8_13
Download citation
DOI: https://doi.org/10.1007/978-3-319-29922-8_13
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-29921-1
Online ISBN: 978-3-319-29922-8
eBook Packages: Physics and AstronomyPhysics and Astronomy (R0)