The VIX “Volmaggedon”, with Exchange-Traded Notes Destabilizing the Market

Hari P. Krishnan () and Ash Bennington ()
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Hari P. Krishnan: SCT Capital
Ash Bennington: Real Vision TV

Chapter Chapter 4 in Market Tremors, 2021, pp 83-119 from Springer

Abstract: Abstract In this chapter, we reformulate the February 2018 “VolmageddonVolmageddonVolpocalypse” in a Mean FieldMean Field context. Here, desks supporting inverse VIXthe S&P 500 Volatility Index, or VIX ETNsExchange-Traded Notes (ETNs) acted as highly destabilizing Dominant AgentsDominant Agent in the underlying VIXthe S&P 500 Volatility Index, or VIX futures markets. We start by explaining why they grew so strongly until their sudden demise. We then demonstrate how they turned the VIXthe S&P 500 Volatility Index, or VIX futures complex into a giant Jack-in-the-Box that was ready to leap out given an initial shock and forced rebalancing. Our main result is a numerical risk estimate for the modified distribution. Significantly, our estimate is close to the realized change in front month VIXthe S&P 500 Volatility Index, or VIX futures during the VolmageddonVolmageddonVolpocalypse. This provides added support for our Mean FieldMean Field approach.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-79253-4_4

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DOI: 10.1007/978-3-030-79253-4_4

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