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Measuring and hedging geopolitical risk

Abstract:

Geopolitical events can impact volatilities of all assets, asset classes, sectors and countries. It is shown that innovations to volatilities are correlated across assets and therefore can be used to measure and hedge geopolitical risk. We introduce a definition of geopolitical risk which is based on volatility shocks to a wide range of financial market prices. To measure geopolitical risk, we propose a statistical model for the magnitude of the common volatility shocks. Accordingly, a test a...

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Publication status:
Published

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Publisher copy:
10.2139/ssrn.3685213

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Institution:
University of Oxford
Division:
College Only
Oxford college:
Nuffield College
Role:
Author
Publisher:
SSRN Publisher's website
Publication date:
2020-10-29
DOI:
Language:
English
Keywords:
Pubs id:
1139938
Local pid:
pubs:1139938
Deposit date:
2020-11-04

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