August 2011
Intermediate to advanced
288 pages
6h 58m
English
Preface
The current level of the CBOE Volatility Index, or VIX, is part of the litany of information thrown out at a rapid pace on morning business programs. In times of extreme market moves, the VIX gets a bit more attention and possibly a little explanation. That explanation is often that it is a “fear index.” Needless to say, the VIX is much more than an index of fear in the stock market.
The VIX emerged from academic work in the early 1990s as a method of determining a consistent level of implied volatility of option contracts trading on the S&P 100 (OEX) Index at the Chicago Board Options Exchange. For almost a decade, this measure was a side note of market activity.
Then, in the early part of the 2000s, the formula was updated to encompass more option contracts and the focus shifted from the S&P 100 to the S&P 500 index. This update, to include more contracts and focus on the S&P 500, was in preparation to offer derivative contracts on volatility.
Futures and then option contracts were developed by the CBOE to allow investors the ability to capitalize on an outlook for market volatility. These contracts witnessed steady growth until the second half of 2008, when, with an explosion in implied volatility, the marketplace realized the benefits of volatility as a diversification tool.
Other exchanges have taken notice of the success of VIX futures and options and have developed their own volatility indexes and derivative products. Volatility indexes and derivatives on gold, ...
