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Model-free volatility indexes in the financial literature: A review

Maria T. Gonzalez-Perez ()

International Review of Economics & Finance, 2015, vol. 40, issue C, 141-159

Abstract: This article describes the primary uses of the VIX index in the financial literature, offering for the first time a joint view of its successes and failures in key financial areas. VIX is a model-free volatility index that measures the investor “fear” gauge due to its significant and negative relationship with S&P 500 return dynamics, which justifies its use as a proxy for market risk and volatility. This article focuses on the most frequent uses of VIX, namely, as (1)a financial product to hedge a portfolio against volatility risk; (2)a market risk measure used to analyze risk flows from financial markets and to relate private and public risks; and (3)a volatility measure to estimate the spot volatility dynamics, the volatility risk premium and volatility jumps. This survey offers an entre for researchers who consider VIX as a proxy for volatility and/or risk.

Keywords: Volatility indices; Leverage effect; Forecast volatility; Variance risk premium; Volatility derivatives (search for similar items in EconPapers)
JEL-codes: C12 G10 G13 G14 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:40:y:2015:i:c:p:141-159

DOI: 10.1016/j.iref.2015.02.018

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