Mar 29, 2012

Volatility Risk Premium

Volatility risk premium is an important statistic for options traders. It is a single number that estimates premium that is priced in to the options due to volatility of volatility, or jumps. Jared Woodard wrote an excellent research brief on it Options and the Volatility Risk Premium  and I wrote earlier about VRP in stocks and VIX options. Below I compare realized volatility of different stock indexes with their implied volatility indexes, and find considerable dispersion in VRP values. Perhaps this is because there are slight differences in methods used for volatility indexes.


And same data in the raw table form.


Average Implied Volatility Index vs Realized Volatility for the last 5 years
Stock/Volatility Index Realized Implied VRP
NIFTY/INVIXN 30.3801 30.1993 0.10953
RTSI$/RTSVX 42.104 43.0253 -0.78427
RTY/RVX 33.5548 32.4393 0.73617
TOP40/SAVIT40 26.7024 27.2037 -0.2702
ASX/SPAVIX 24.7419 26.1983 -0.7419
DAX/V1X 27.0265 27.349 -0.17533
SX5E/V2X 28.2234 29.1638 -0.53966
SMI/V3X 22.3754 23.1146 -0.33629
AEX/VAEX 27.3087 27.2267 0.044695
CAC/VCAC 28.3253 27.245 0.60033
UKX/VFTSE 24.5219 25.0541 -0.26384
HSI/VHSI 32.7383 31.5557 0.76034
SPX/VIX 26.6402 25.9783 0.3483
SPTSX60/VIXC 15.7155 19.3213 -1.2634
KOSPI/VKOSPI 26.781 27.3645 -0.31593
NKY/VNKY 29.227 29.5678 -0.20037
INDU/VXD 24.1924 23.4958 0.33221
NDX/VXN 27.4897 27.3807 0.059849


Mar 19, 2012

Week In Volatility

Volatility indexes fell around the world, and futures traded comparably lower. In Russia RTSVX fell on post-election non-event, and exchange holiday on the 8-9. Recently listed VHSI futures traded 84 contracts, and VXEWZ traded almost 300. I don't have volume data for VNKY futures, but looking at the term structure it looks like may expiration contract is overpriced compared to others - and this did not go away as the contract settled on Monday at 22.70. Is there an event being priced in the market?










Mar 9, 2012

More Volatility Data

As number of volatility indexes and volatility-linked instruments is growing every day I add them to the blog. Now because of the increase in data I decided to break it up into 3 separate pages:

Volatility Indexes contains all major country volatility indexes, non-equity indexes for commodities as well as swaptions and US treasury options -based volatility indexes, special strategy indexes including implied correlation indexes from CBOE, as well as many other specialized regional indexes and stock-based volatility indexes.

Volatility ETFs and ETNs has complete list of all volatility based exchange traded products around the world, including those based on VSTOXX futures. I expect this list to grow as volatility futures markets in Hong-Kong and Osaka mature.

Just today I added another page specifically for currencies. I am not sure what this page is going to be, but I will be adding data, and will see what will come out of it.

The list of indexes and ETPs is really meant to identify all volatility indexes and instruments; if you see that I am missing something please send me an email. 

Mar 8, 2012

Calculating VIX - like Indexes In Excel

There are two excellent resources on creating your own spreadsheet for calculating VIX or VIX-like volatility index for your product of choice:

1 "Calculating the VIX in Excel" by Tom Arnold and John H. Earl, available for free download from SSRN.

2  Derivatives: Markets, Valuation, and Risk Management (Wiley Finance) has step by step demonstration from Robert Whaley - the person who invented VIX! Book preview (with complete VIX calculation instructions) is available from google books (Appendix 15A)

Mar 5, 2012

Week In Volatility

Over the last week volatility indexes remained relatively unchanged. VXEEM traded a healthy 648 contracts, and VXEWZ Futures commenced trading with 100 contracts - 50 in Apr and 50 in May. At the same time CFE/CBOE website removed reference to OVX (OV) Futures. VHSI Futures traded 36 contracts - let's hope the volume will pick up.











Mar 1, 2012

Implied Volatility Surprisingly Low Before Russian Elections

Russian presidential elections are set for Sunday, but options markets are complacent: RTSVX - Russian Volatility Index is near multi-month lows at 33.04, and similarly ATM volatility in RSX options. Front-month futures on RTSVX that are expiring next Wednesday, March 7 are trading just barely above the index, closing today at 33.25. If I had access to the contract I would certainly buy at this level - upside is certainly much higher than the downside in case election turns out to be an event.




















One interesting feature that I see on the chart is frequent over-reaction (and occasional under-reaction) of RSX vol compared with RTSVX. I do not know enough details about differences between the indexes to see if there a trading opportunity.