Download or read book Forecasting the VIX to Improve VIX Derivatives Trading written by Chrilly Donninger and published by . This book was released on 2016 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt: Konstantinidi et. al. state in their broad survey of Volatility-Index forecasting: "The question whether the dynamics of implied volatility indices can be predicted has received little attention". The overall result of this and the quoted papers is: The VIX is too a very limited extend (R2 is typically 0.01) predictable, but the effect is economically not significant.This paper confirms this finding if (and only if) the forecast horizon is limited to one day. But there is no practical need to do so. One can - and usually does - hold a VIX Future or Option several trading days. It is shown that a simple model has a highly significant predictive power over a longer time horizon. The forecasts improve realistic trading strategies.
Download or read book Trading VIX Derivatives written by Russell Rhoads and published by John Wiley & Sons. This book was released on 2011-07-11 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: A guide to using the VIX to forecast and trade markets Known as the fear index, the VIX provides a snapshot of expectations about future stock market volatility and generally moves inversely to the overall stock market. Trading VIX Derivatives will show you how to use the Chicago Board Options Exchange's S&P 500 volatility index to gauge fear and greed in the market, use market volatility to your advantage, and hedge stock portfolios. Engaging and informative, this book skillfully explains the mechanics and strategies associated with trading VIX options, futures, exchange traded notes, and options on exchange traded notes. Many market participants look at the VIX to help understand market sentiment and predict turning points. With a slew of VIX index trading products now available, traders can use a variety of strategies to speculate outright on the direction of market volatility, but they can also utilize these products in conjunction with other instruments to create spread trades or hedge their overall risk. Reviews how to use the VIX to forecast market turning points, as well as reveals what it takes to implement trading strategies using VIX options, futures, and ETNs Accessible to active individual traders, but sufficiently sophisticated for professional traders Offers insights on how volatility-based strategies can be used to provide diversification and enhance returns Written by Russell Rhoads, a top instructor at the CBOE's Options Institute, this book reflects on the wide range of uses associated with the VIX and will interest anyone looking for profitable new forecasting and trading techniques.
Download or read book Forecasting and Trading VIX Futures written by 高振添 and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Ability of VIX Futures to Predict S P 500 Volatility written by Peter Williams and published by . This book was released on 2018 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the ability of futures on the CBOE Volatility Index (VIX) to predict realized S&P 500 volatility up to seven months into the future. These forecasts are found to be significantly biased. The imposition of a priori theoretically motivated restrictions can substantially improve forecast accuracy, especially when the VIX futures are augmented with the variance risk premium. When VIX futures are compared with out-of-sample forecasts from a GJR-GARCH model, the VIX-based forecasts are found to robustly outperform during periods of high volatility. In more normal states this out-performance is less significant but still present.
Download or read book Modeling and Forecasting the VIX Index written by Katja Ahoniemi and published by . This book was released on 2008 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper models the implied volatility of the Samp;P 500 index, with the aim of producing useful forecasts for option traders. Numerous time-series models of the VIX index are estimated, and daily out-of-sample forecasts are calculated from all relevant models. The directional accuracy of the forecasts is evaluated with market-timing tests. Option trades are simulated based on the forecasts, and their profitability is also used to rank the models. The results indicate that an ARIMA (1,1,1) model enhanced with exogenous regressors has predictive power regarding the directional change in the VIX index. GARCH terms are statistically significant, but do not improve forecasts. The best models predict the direction of change correctly for over 60 percent of the trading days. Out-of-sample option trading over a period of fifteen months yields positive returns when the forecasts from the best models are used as the basis for investment decisions.
Download or read book The VIX Futures Basis written by David P. Simon and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study demonstrates that the VIX futures basis does not have significant forecast power for the change in the VIX spot index from 2006 through 2011 but does have forecast power for subsequent VIX futures returns. The study then demonstrates the profitability of shorting VIX futures contracts when the basis is in contango and buying VIX futures contracts when the basis is in backwardation with the market exposure of these positions hedged with mini-S&P 500 futures positions. The results indicate that these trading strategies are highly profitable and robust to transaction costs, out of sample hedge ratio forecasts and risk management rules. Overall, the analysis supports the view that the VIX futures basis does not accurately reflect the mean-reverting properties of the VIX spot index but rather reflects a risk premium that can be harvested.
Download or read book Is the VIX Futures Market Able to Predict the VIX Index A Test of the Expectation Hypothesis written by Marcus Nossman and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tests the expectation hypothesis by using the volatility index VIX and the futures written on that index. Because the VIX index is negatively correlated with the Samp;P 500 index returns, the VIX futures price should contain a negative risk premium, which we do confirm in this study. When the futures price is not adjusted with the risk premium, the expectation hypothesis is rejected at the 5 percent significance level for 20 of 21 forecast horizons. However when we adjust the futures price with the risk premium, obtained from a stochastic volatility model, the expectation hypothesis cannot be rejected. Further, we find that the risk premium adjusted futures price forecasts the direction of the VIX index well. The one day ahead forecast predicts the direction correctly in 73 percent of the times.
Download or read book The Market for Volatility Trading Vix Futures written by Menachem Brenner and published by . This book was released on 2008 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the new market for trading volatility; VIX futures. We first use market data to establish the relationship between VIX futures prices and the index itself. We observe that VIX futures and VIX are highly correlated; the term structure of VIX futures price is upward sloping while the term structure of VIX futures volatility is downward sloping. To establish a theoretical relationship between VIX futures and VIX, we model the instantaneous variance using a simple square root mean-reverting process. Using daily calibrated variance parameters and VIX, the model gives good predictions of VIX futures prices. These parameter estimates could be used to price VIX options.
Download or read book The VIX Trader s Handbook written by Russell Rhoads and published by Harriman House Limited. This book was released on 2020-10-27 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: Russell Rhoads is one of America’s leading experts on VIX, the Volatility Index. In The VIX Trader’s Handbook he takes a deep dive into all things associated with volatility indexes and related trading vehicles. The handbook begins with an explanation of what VIX is, how it is calculated, and why it behaves the way it does in various market environments. It also explains the various methods of getting exposure to volatility through listed markets. The focus then moves on to demonstrate how traders take advantage of various scenarios using futures, options, or ETPs linked to the performance of VIX. Finally, a comprehensive review is presented of volatility events that shook the markets, including the 1987 crash, Great Financial Crisis, 2010 flash crash, and the 2020 pandemic. By understanding how VIX behaved leading up to these market shocks, and reacted afterwards, traders can better equip themselves ahead of future events. A wide variety of strategies that are implemented in both bearish and bullish equity markets are introduced and covered extensively throughout. The VIX Trader’s Handbook is essential reading for all those who are intending to trade volatility—from those who wish to gain an understanding of how VIX and the related trading products behave, to those intending to hedge equity exposure or take advantage of the persistent overpricing of option volatility. You won’t want to trade volatility without it.
Download or read book The Causal Relationship between the S P 500 and the VIX Index written by Florian Auinger and published by Springer. This book was released on 2015-02-13 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Florian Auinger highlights the core weaknesses and sources of criticism regarding the VIX Index as an indicator for the future development of financial market volatility. Furthermore, it is proven that there is no statistically significant causal relationship between the VIX and the S&P 500. As a consequence, the forecastability is not given in both directions. Obviously, there must be at least one additional variable that has a strong influence on market volatility such as emotions which, according to financial market experts, are considered to play a more and more important role in investment decisions.
Download or read book On the Intraday Relation Between the VIX and Its Futures written by Bart Frijns and published by . This book was released on 2014 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Chicago Board Options Exchange (CBOE) introduced the CBOE Volatility Index (VIX) in 1993. The index has come to act as the benchmark for stock market volatility and, more generally, investor sentiment. The VIX has proven to be very useful in forecasting the future market direction especially during high volatility periods. In order to expedite trading in volatility, as well as increase hedging opportunities, the CBOE introduced futures on the VIX (henceforth referred to as VXF) on March 26, 2004.We study the intraday dynamics of the VIX and VXF for the period January 2, 2008 to December 31, 2012. Applying a Vector Autoregression (VAR) model on daily data, we observe some evidence of causality from the VXF to the VIX. However, estimating a VAR using our ultra-high frequency data, we find strong evidence for bi-directional Granger causality between the VIX and the VXF. Overall, this effect appears to be stronger from the VXF to the VIX than the other way around. Impulse response functions and variance decompositions analysis further confirm the dominance of the VXF. Lastly, we show that the causality from the VXF to the VIX has been increasing over our sample period, whereas the reverse causality has been decreasing. This finding suggests that the VIX futures have become increasingly more important in the pricing of volatility. We further document that the VIX futures dominate the VIX more on days with negative returns, and on days with high values of the VIX, suggesting that on those days investors use VIX futures to hedge their positions rather than trading in the S&P 500 index options.
Download or read book VIX Futures Basis Trading written by Chrilly Donninger and published by . This book was released on 2014 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: I developed in a previous working paper the Sidre and Most-Strategy. The strategy relies on the typical termstructure of VIX futures. The Calvados is a refined and condensed version of these strategies. The starting point was a paper of Simon and Campasano. The authors demonstrate that the VIX futures basis does not have significant forecast power for the change in the VIX spot index, but does have forecast power for subsequent VIX futures returns. It is especially profitable to short VIX futures contracts when the basis is in contango. The original Calvados working paper presented improved metrics and parameter settings of the Simon&Campasano approach. The current working paper improves the original work in several points and extends the historic backtest.The overall patterns of the original results are reassured and improved upon. The Calvados is traded in the Sybil-Fund. It is so far the pick of the bunch. One gets a lot of fun for a medium dose of risk.
Download or read book Are VIX Futures Prices Predictable An Empirical Investigation written by Eirini Konstantinidi and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates whether volatility futures prices per se can be forecasted by studying the fast growing VIX futures market. To this end, alternative model specifications are employed. Point and interval out-of sample forecasts are constructed and evaluated under various statistical metrics. Next, the economic significance of the obtained forecasts is also assessed by performing trading strategies. Only weak evidence of statistically predictable patterns in the evolution of volatility futures prices is found. No trading strategy yields economically significant profits. Hence, the hypothesis that the VIX volatility futures market is informationally efficient cannot be rejected.
Download or read book The VIX Index and Volatility Based Global Indexes and Trading Instruments A Guide to Investment and Trading Features written by Matthew T. Moran and published by CFA Institute Research Foundation. This book was released on 2020-04-28 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: During the past two decades, the Cboe Volatility Index (VIX® Index), a key measure of investor sentiment and 30-day future volatility expectations, has generated much investor attention because of its unique and powerful features. The introduction of VIX futures in 2004, VIX options in 2006, and other volatility-related trading instruments provided traders and investors access to exchange-traded vehicles for taking long and short exposures to expected S&P 500 Index volatility for a particular time frame. Certain VIX-related tradable products may provide benefits when used as tools for tail-risk hedging, diversification, risk management, or alpha generation. Gauges of expected stock market volatility for various regions include the VIX Index (United States), AXVI Index (Australia), VHSI Index (Hong Kong), NVIX Index (India) and VSTOXX Index (Europe). All five of these volatility indexes had negative correlations with their related stock indexes price movements, and all five volatility indexes rose more than 50% in 2008. Although the five volatility indexes are not investable, investors can explore VIX-based benchmark indexes that show the performance of hypothetical investment strategies using VIX futures or options. Before investing in volatility-related products, investors should closely study the pricing, roll cost, and volatility features of the tradable products and read the applicable prospectuses and risk disclosure statements.
Download or read book Forecasting VIX written by Stavros Antonios Degiannakis and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Implied volatility index of the S&P500 is considered as a dependent variable in a fractionally integrated ARMA model, whereas volatility measures based on interday and intraday datasets are considered as explanatory variables. The next trading day's implied volatility forecasts provide positive average daily profits. All the forecasting information is provided by the VIX index itself. There is no incremental predictability from both realized volatility computed from intraday data and conditional volatility extracted from an Arch model. Hence, neither the interday volatility nor the use of intraday data yield any added value in forecasting the S&P 500 implied volatility index. However, an agent cannot utilize VIX predictions in creating abnormal returns in implied volatility futures market.
Download or read book A Practical Guide to Forecasting Financial Market Volatility written by Ser-Huang Poon and published by John Wiley & Sons. This book was released on 2005-08-19 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial market volatility forecasting is one of today's most important areas of expertise for professionals and academics in investment, option pricing, and financial market regulation. While many books address financial market modelling, no single book is devoted primarily to the exploration of volatility forecasting and the practical use of forecasting models. A Practical Guide to Forecasting Financial Market Volatility provides practical guidance on this vital topic through an in-depth examination of a range of popular forecasting models. Details are provided on proven techniques for building volatility models, with guide-lines for actually using them in forecasting applications.
Download or read book Trading the VIX Futures Roll and Volatility Premiums with VIX Options written by David P. Simon and published by . This book was released on 2015 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the efficiency of VIX option trading strategies that exploit the VIX futures roll and the often substantial VIX futures volatility premiums from January 2007 through March 2014. The study first assesses the related issue of whether VIX options typically are overpriced by examining long VIX option delta-hedged returns and demonstrates that average losses on front contract calls and puts over 5-business day horizons either are not statistically significant or are economically small. In light of the evidence that VIX option buyers on average do not overpay at all or by much for the limited risk associated with VIX options, the study then turns to whether long VIX option positions can be used to exploit the well-documented tendencies of VIX futures to rise and fall when the VIX futures curve is in backwardation and in contango, respectively, as well as the tendency of VIX futures to build in large ex-ante volatility premiums. The results demonstrate that these defined-risk strategies are highly profitable and offer attractive risk-reward tradeoffs. Moreover, the systematic tendencies of VIX futures have far more power for predicting attractive VIX option returns than the ex-ante volatility premiums built into VIX options. The study also shows that long VIX option strategies importantly benefit from a strong tailwind that owes to the tendency of VIX option implied volatilities to rise with increases in the actual volatilities of underlying VIX futures contracts, as VIX futures move toward settlement and their volatilities rise to the typically higher volatility of the VIX.
