Jun 15, 2011

VIX Expiration and Forecasts

VIX settled this morning at 19.73, up 1.71 from May. VSTOXX closed at 23.23, up 0.87. Overall despite low volatility levels high economic uncertainly is priced in skew and term structure. My own forecasts for the next expiration are
  • VIX at 19.71 vs 19.20 in futures
  • VSTOXX at 22.79 vs 22.40 in futures
This is the first time that I recall my forecasts being so close to the market, and obviously makes for a challenging trading environment. As I wrote few weeks ago, I added a forecasts tracker page to the blog, where I record all the forecasts made here. The page has been updates with the settlement values, this month my models have outperformed market forecasts in terms of absolute error. I have also added signal and simulated PL for the futures columns.

Volatility forecasting contest that I announced few weeks ago is now closed. I was hoping for a better response, but I guess readers just afraid to be spammed. Still, I'm happy this way it turned out to be a close-knit group of readers. The forecasts range from 13.50 to 25.12, with average value of 18.12, and median value of 17.01. Using bootstrap I calculated the confidence of 0.70 (1 std) on the forecast, which is much much smaller than anything one would get by a statistical technique! (See the bootstrap of the forecasts below) I'm surprised that most of you emailed forecasts with cents component, as opposed to rounded to a dollar, which to me is an indirect evidence that people really put thought into their forecasts. Good luck, traders, and hedge your deltas!

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