Thoughts on the VIX Fear Index

Rachel E. S. Ziemba and William T. Ziemba
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Rachel E. S. Ziemba: Roubini Global Economics, UK
William T. Ziemba: University of British Columbia, Canada

Chapter 19 in Investing in the Modern Age, 2013, pp 229-238 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThe VIX is the standard deviation of the implied volatility of S&P500 index options that are close to the money and not far into the future. Put options dominate in the various VIX calculations for the US equity and other markets. High put prices lead to high fear reflected through high VIX values. The VIX is a weighted average of various implied volatilities of various options whose volatilities are backed out based on their prices by some option pricing model. The VIX can vary from a low in the 10% range to the high 20s into the low 30s for violent stressful markets and as high as 70% to 100%+ in market crashes. In 1990, the VIX of the Nikkei Stock average of 225 stocks (price weighted like the Dow Jones) was in the 70% plus area for months and months. Figure 19.1 has the spot VIX graphs for 2002-2012 and Table 19.1 has the VIX futures as of September 30, 2012…

Keywords: Hedge Funds; Sovereign Wealth Funds; Investment Agglomerations; Endowment Investing; Stock Market Crashes and Their Prediction; Global Economic Situation; Global Investment Strategies; Kelly and Fractional Kelly Wagering Strategies; Calendar Anomalies; Political Party; Time of Year Effects (search for similar items in EconPapers)
Date: 2013
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