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The Relationship Between Vix Futures Term Structure And Sp500 Returns
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Book Synopsis The Relationship Between VIX Futures Term Structure and S&P500 Returns by : Athanasios Fassas
Download or read book The Relationship Between VIX Futures Term Structure and S&P500 Returns written by Athanasios Fassas and published by . This book was released on 2016 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current paper tests and documents the relationship between the term structure of VIX futures and the underlying equity returns. Furthermore, it investigates the signaling effects of VIX futures term structure in respect to future stock index movements. The objective of this empirical analysis is to verify if a steep upward-sloping term structure indicates a late phase of a bullish trend and conversely if an extreme negative term structure suggests an over-sold market, as certain market participants believe.The empirical findings of this study suggest that there is a strong statistical significant positive contemporaneous relationship between the changes in the VIX futures term structure and the returns of the underlying equity index. Finally, the econometric analysis lends some support to the hypothesis that the term structure of VIX futures can be used as a contrarian indicator for investing in the equity market.
Book Synopsis A Note of Trading the Term Structure of VIX Futures by : Anusar Farooqui
Download or read book A Note of Trading the Term Structure of VIX Futures written by Anusar Farooqui and published by . This book was released on 2020 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt: The term structure of VIX futures contains a very strong signal of dealer risk appetite. Unlike balance sheet quantities, this feature is available at very high frequencies. Here we exhibit two systematic strategies to mine the attendant risk premium from the term structure of expected volatility. We optimize our two hyper-parameters by OOS cross-validation. We compare our strategies to holding the S&P 500, selling short-term vol un-hedged, and a portfolio that sells short-term vol and hedges by going long on medium-term vol. We find that our strategies allow us to harvest a considerable portion of the risk premium associated with the balance sheet management of market-based intermediaries. Both in-sample and OOS, the risk-adjusted returns on our strategies are at least twice as high as the three benchmarks.
Book Synopsis The Information Content of the Implied Volatility Term Structure on Future Returns by : Yaw-Huei Wang
Download or read book The Information Content of the Implied Volatility Term Structure on Future Returns written by Yaw-Huei Wang and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the theoretical relation between the term structure of implied variance and the expected excess returns of the underlying asset. Adopting three alternative approaches to compile the variables representing the information on the implied volatility index level and term structure, we show the important role of the term structure in determining future excess returns of the S&P 500 index. Both the in-sample and out-of-sample analyses suggest that the information content of the term structure variable is significant and a strong complement to that of the level variable, especially for shorter-term excess returns.
Book Synopsis Risk Premia and the VIX Term Structure by : Travis L. Johnson
Download or read book Risk Premia and the VIX Term Structure written by Travis L. Johnson and published by . This book was released on 2018 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: The shape of the VIX term structure conveys information about the price of variance risk rather than expected changes in the VIX, a rejection of the expectations hypothesis. A single principal component, Slope, summarizes nearly all this information, predicting the excess returns of S&P 500 variance swaps, VIX futures, and S&P 500 straddles for all maturities and to the exclusion of the rest of the term structure. Slope's predictability is incremental to other proxies for the conditional variance risk premia, is economically significant, and can only partially be explained by variations in observable risk measures.
Book Synopsis Directional Exposure to Volatility via Listed Futures S&P 500 VIX Short-Term Futures Index by : Global Research & Design S&P Dow Jones Indices
Download or read book Directional Exposure to Volatility via Listed Futures S&P 500 VIX Short-Term Futures Index written by Global Research & Design S&P Dow Jones Indices and published by . This book was released on 2009 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volatility has emerged as an important asset class in the last decade. It is actively traded through over-the counter swaps, and more recently through exchange listed VIX futures and options. While VIX has achieved widespread recognition, it remains very challenging to replicate spot VIX. The Samp;P 500 VIX Short-Term Futures Index is the first index to offer replicable, directional exposure to volatility using exchange-listed futures contracts. The index is comprised of two near term VIX futures contracts, which are rebalanced daily in equal increments in order to maintain a constant one month maturity. While the correlation between spot VIX and the Samp;P 500 VIX Short-Term Futures Index is not perfect, it is a healthy 87%. More importantly, the correlation of the index to the Samp;P 500 is -76%, similar to the correlation of spot VIX to the Samp;P 500 of -74%. The index has a positive return 95% of the time that the Samp;P 500 has a loss of more than 1%. During days of sharp market declines, index returns are usually greater in value than corresponding Samp;P 500 losses. Dedicated long positions in the index are expected to decline during normal volatility regimes. Not only is volatility mean reverting to a theoretical expected long term return of zero, but the index is also expected to suffer from roll loss due to term structure decay. Conversely, short positions in the index provide exposure to a forward starting volatility arbitrage strategy.
Book Synopsis The VIX Index and Volatility-Based Global Indexes and Trading Instruments: A Guide to Investment and Trading Features by : Matthew T. Moran
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.
Book Synopsis Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX Markets by : Chris Bardgett
Download or read book Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX Markets written by Chris Bardgett and published by . This book was released on 2017 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that the VIX market contains information that is not already contained by the S&P 500 market on the variance of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including VIX option prices in the model estimation allows better identification of the parameters driving the risk-neutral conditional distributions and term structure of volatility, thereby enhancing the estimation of the variance risk premium. We gain new insights on the properties of the premium's term structure and show how they can be used to form trading signals. Finally, our premium has better predictive power than the usual model-free estimate and the higher-order moments of its term structure allow improving forecasts of S&P 500 returns.
Book Synopsis Variance Term Structure and VIX Futures Pricing by : Yingzi Zhu
Download or read book Variance Term Structure and VIX Futures Pricing written by Yingzi Zhu and published by . This book was released on 2005 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using no arbitrage principle, we derive a relationship between the drift term of risk-neutral dynamics for instantaneous variance and the term structure of forward variance curve. We show that the forward variance curve can be derived from options market. Based on the variance term structure, we derive a no arbitrage pricing model for VIX futures pricing. The model is the first no arbitrage model combining options market and VIX futures market. The model can be easily generalized to price other volatility derivatives.
Book Synopsis A Complete Guide to the Futures Market by : Jack D. Schwager
Download or read book A Complete Guide to the Futures Market written by Jack D. Schwager and published by John Wiley & Sons. This book was released on 2017-01-03 with total page 723 pages. Available in PDF, EPUB and Kindle. Book excerpt: The essential futures market reference guide A Complete Guide to the Futures Market is the comprehensive resource for futures traders and analysts. Spanning everything from technical analysis, trading systems, and fundamental analysis to options, spreads, and practical trading principles, A Complete Guide is required reading for any trader or investor who wants to successfully navigate the futures market. Clear, concise, and to the point, this fully revised and updated second edition provides a solid foundation in futures market basics, details key analysis and forecasting techniques, explores advanced trading concepts, and illustrates the practical application of these ideas with hundreds of market examples. A Complete Guide to the Futures Market: Details different trading and analytical approaches, including chart analysis, technical indicators and trading systems, regression analysis, and fundamental market models. Separates misleading market myths from reality. Gives step-by-step instruction for developing and testing original trading ideas and systems. Illustrates a wide range of option strategies, and explains the trading implications of each. Details a wealth of practical trading guidelines and market insights from a recognized trading authority. Trading futures without a firm grasp of this market’s realities and nuances is a recipe for losing money. A Complete Guide to the Futures Market offers serious traders and investors the tools to keep themselves on the right side of the ledger.
Book Synopsis The Market for Volatility Trading; Vix Futures by : Menachem Brenner
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.
Book Synopsis The Volatility-of-Volatility Term Structure by : Nicole Branger
Download or read book The Volatility-of-Volatility Term Structure written by Nicole Branger and published by . This book was released on 2018 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the volatility-of-volatility (VVIX) term structure. We find that the slope of the VVIX, defined as VVIX' second principal component, predicts excess returns of S&P500 and VIX traddles. Its informational content is incremental to the VIX term structure and the variance risk premium. Thus, vol-of-vol risk matters even for stock index options. A model-based approximation for the VVIX shows that the main drivers of its term structure are continuous vol-of-vol and jump risk. Their contributions vary systematically with the state of the economy. When the latest major crises hit, continuous vol-of-vol took the lion's share over all maturities.
Book Synopsis Analysis of VIX Markets with a Time-Spread Portfolio by : Andrew Papanicolaou
Download or read book Analysis of VIX Markets with a Time-Spread Portfolio written by Andrew Papanicolaou and published by . This book was released on 2017 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article explores the relationship between option markets for the S&P500 (SPX) and CBOE's Volatility Index (VIX). Results are obtained by using the so-called time-spread portfolio to replicate a future contract on the squared VIX. The time-spread portfolio is interesting because it provides a model-free link between derivative prices for SPX and VIX. Time spreads can be computed from SPX put options with different maturities, which results in a term structure for squared volatility. This term structure can be compared to the VIX-squared term structure that is backed-out from VIX call options. The time-spread portfolio is also used to measure volatility-of-volatility (vol-of-vol) and the volatility leverage effect. There may emerge small differences in these measurements, depending on whether time spreads are computed with options on SPX or options on VIX. A study of 2012 daily options data shows that vol-of-vol estimates utilizing SPX data will reflect the volatility leverage effect, whereas estimates that exclusively utilize VIX options will predominantly reflect the premia in the VIX-future term structure.
Book Synopsis Explaining the Negative Returns to Volatility Products by :
Download or read book Explaining the Negative Returns to Volatility Products written by and published by . This book was released on 2016 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies returns to investing in volatility products with a primary focus on VIX futures and VIX Exchange Traded Products (ETPs). Substantial negative return premiums for these assets are documented. For example, the constant maturity portfolio of one-month VIX futures loses about 30\% per year from 2006 to 2013. The goal of the dissertation is to understand those big negative returns.The two chapters take two different and potentially complementary perspectives to look at the issue. The first chapter attempts a structural explanation and investigates if the negative VIX futures return premium is consistent with a notion of dynamic equilibrium. A model based on present value computation is derived and it endogenizes stock prices, the VIX index and its associated derivative contracts. The sizable negative volatility risk premium in the model is intuitively linked to the volatility feedback effect: increases in volatility endogenously lead to decreasing stock price. Both diffusive and jump shocks to cash flow volatility are priced in equilibrium and the market price of risk is a function of risk aversion and the ``deep" parameters that govern the dynamics of volatility. The model generates an upward sloping equilibrium VIX futures curve (contango) in steady state. The estimated model explains the negative returns as well as several other stylized features of the VIX futures, ETPs, and variance swap data. The second chapter explores whether price impact due to mechanical rolling activity of VIX ETPs contributes to the catastrophic loss. Empirical evidence is provided to support this hypothesis. The shape of the VIX future term structure is found to be significantly twisted by VIX ETPs'r rolling. The performance of VIX future indices that VIX ETPs track gets much worse after the launch of VIX ETPs. Greater amount of rolling relative to the total volume of VIX futures results in bigger loss. Front running strategies taking advantage of the price impact are shown to be very profitable right after the launch of VIX ETPs. The strategies deteriorate afterwards because VIX futures market gains more liquidity relative to VIX ETPs and also possibly because of arbitrageurs' more attention over time. In line with the price impact reasoning, VIX futures deliver abnormal daily returns when there is a directional change of trade flow by VIX ETPs.
Book Synopsis Trading VIX Derivatives by : Russell Rhoads
Download or read book Trading VIX Derivatives written by Russell Rhoads and published by John Wiley & Sons. This book was released on 2011-08-09 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.
Book Synopsis Trading Volatility by : Colin Bennett
Download or read book Trading Volatility written by Colin Bennett and published by . This book was released on 2014-08-17 with total page 316 pages. Available in PDF, EPUB and Kindle. Book excerpt: This publication aims to fill the void between books providing an introduction to derivatives, and advanced books whose target audience are members of quantitative modelling community. In order to appeal to the widest audience, this publication tries to assume the least amount of prior knowledge. The content quickly moves onto more advanced subjects in order to concentrate on more practical and advanced topics. "A master piece to learn in a nutshell all the essentials about volatility with a practical and lively approach. A must read!" Carole Bernard, Equity Derivatives Specialist at Bloomberg "This book could be seen as the 'volatility bible'!" Markus-Alexander Flesch, Head of Sales & Marketing at Eurex "I highly recommend this book both for those new to the equity derivatives business, and for more advanced readers. The balance between theory and practice is struck At-The-Money" Paul Stephens, Head of Institutional Marketing at CBOE "One of the best resources out there for the volatility community" Paul Britton, CEO and Founder of Capstone Investment Advisors "Colin has managed to convey often complex derivative and volatility concepts with an admirable simplicity, a welcome change from the all-too-dense tomes one usually finds on the subject" Edmund Shing PhD, former Proprietary Trader at BNP Paribas "In a crowded space, Colin has supplied a useful and concise guide" Gary Delany, Director Europe at the Options Industry Council
Book Synopsis Alternative Investments by : CAIA Association
Download or read book Alternative Investments written by CAIA Association and published by John Wiley & Sons. This book was released on 2016-09-22 with total page 1107 pages. Available in PDF, EPUB and Kindle. Book excerpt: In-depth Level II exam preparation direct from the CAIA Association CAIA Level II is the official study guide for the Chartered Alternative Investment Analyst professional examination, and an authoritative guide to working in the alternative investment sphere. Written by the makers of the exam, this book provides in-depth guidance through the entire exam agenda; the Level II strategies are the same as Level I, but this time you'll review them through the lens of risk management and portfolio optimisation. Topics include asset allocation and portfolio oversight, style analysis, risk management, alternative asset securitisation, secondary market creation, performance and style attribution and indexing and benchmarking, with clear organisation and a logical progression that allows you to customise your preparation focus. This new third edition has been updated to align with the latest exam, and to reflect the current practices in the field. The CAIA designation was developed to provide a standardized knowledge base in the midst of explosive capital inflow into alternative investments. This book provides a single-source repository of that essential information, tailored to those preparing for the Level II exam. Measure, monitor and manage funds from a risk management perspective Delve into advanced portfolio structures and optimisation strategies Master the nuances of private equity, real assets, commodities and hedge funds Gain expert insight into preparing thoroughly for the CAIA Level II exam The CAIA Charter programme is rigorous and comprehensive, and the designation is globally recognised as the highest standard in alternative investment education. Candidates seeking thorough preparation and detailed explanations of all aspects of alternative investment need look no further than CAIA Level II.
Book Synopsis Research in Finance by : John W. Kensinger
Download or read book Research in Finance written by John W. Kensinger and published by Emerald Group Publishing. This book was released on 2012-05-16 with total page 309 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theme of this volume is "Dealing with Volatility and Enhancing Performance". During a time when there is much concern about the perceived volatility of global equity markets, the insights offered here could be reassuring as well as useful.
