Mr. Cole said "Volatility is the BROTHER of credit" And volatility regime shifts are driven by the credit cycle. And we all know the cyclicality of how credit and collateral contract and breathe and expand and exhale. Thus collateral, credit, and vol have a much closer relation. Credit contracts = vol boom Discuss.
Who is Mr Cole, what credit contracts are your referring to and how can you use any knowledge learned from your topic to make money?
Equity Vols and CDS spreads are clearly related as both reflect the condition of the underlying company. Arbitrage is hardly possible due to CDS liquidity on single names. But relatives value plays set up with CDS and Eq Options is a common strategy. As well you can observe the quotation of the itraxx europe (CDS index) changes more or less simultaneously to eurostoxx index var swaps. so it’s used as proxy due to eq being more liquid to trade.