Modeling the volatility of BFCIUS and creating a financial conditions index

As the economy is still recovering from one of the greatest nancial downturns in the last decades, we have experienced that this period of recession is paired with nancial stress. This nancial stress might even be the reason that we have suered from events like the credit crunch, and thus should be prevented from happening as much as possible. Therefore, this research looks into two dierent aspects of nancial conditions. By forecasting several indi- cators of nancial stress, I make an eort to convert the nancial conditions into numerical values, resulting in a nancial conditions index. Moreover, the index from Bloomberg is ana- lyzed extensively in this research, in order to model the volatility of the nancial conditions. This paper shows, that by correct modeling, the volatility of the nancial conditions can be predicted.