How Integrated are Credit and Equity Markets? Evidence from Index Options

Pierre Collin-Dufresne, Benjamin Junge, Anders Bjerre Trolle

Research output: Contribution to conferencePaperResearchpeer-review


In recent years, a liquid market for credit index (CDX) options has developed. We study the extent to which these options are priced consistently with S&P 500 (SPX) equity index options. We derive analytical expressions for CDX and SPX options within a rich structural credit risk model. The model captures many aspects of the joint dynamics of CDX and SPX options; however, it cannot reconcile the relative levels of option prices, suggesting that credit and equity markets are not fully integrated. A strategy of selling CDX volatility yields significantly higher average excess returns and Sharpe ratios than selling SPX volatility
Original languageEnglish
Publication date2022
Number of pages116
Publication statusPublished - 2022
EventThe 82nd Annual Meeting of American Finance Association. AFA 2022: Part of the ASSA 2022 Virtual Annual Meeting - , WWW
Duration: 7 Jan 20229 Jan 2022
Conference number: 82


ConferenceThe 82nd Annual Meeting of American Finance Association. AFA 2022
Internet address


  • Credit risk
  • CDX
  • CDX options
  • SPX
  • SPX options
  • Structural models

Cite this