Apr 6, 2013

Week In Volatility: April 6

News:

VIX Index without a doubt is a dominant volatility instrument, so it is no surprise that CBOE decided to increase trading hours, first by adding separate evening session, then extending morning session to cover entire European trading session. I think this move will actually benefit VSTOXX futures liquidity.


Risk magazine writes that we should expect more products providing exposure to currency and interest rates volatility. Some interest rate products already exist and trade as UCITS like DX24, XVLS, XVOL.

Forecast:

RTSVX April futures expired on Friday, settling at 17.99 (link) . The forecast that I made a month ago was correct on direction, and was closer to settlement value than futures. So far simulated trading in RTSVX has been quite successful, but historical simulations show that the index is volatile and is difficult to forecast accurately. I think this has to do the way that exchange calculates skew - unusual 5-parameter model that includes arctan. I dream of having enough time to research how different / robust index would be if calculated with VXO (old VIX) methodology, just using ATM options.

For the next expiration, May 7th, my forecast is 17.96 vs futures value of 21.75. All forecasts, including past results are logged in volatility forecasts spreadsheet.


2 comments:

  1. Hi ~, Do you have a sense of whether the VIX futures during the European trading hours will correlate to the European markets, or will SPX futures be more influential? There won't be an active S&P 500 VIX to reference. As you have suggested, this move certainly suggests that the SPX option options market is not needed for the effective operation of the VIX futures market.

    -- Vance

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  2. I believe that VIX traders and market makers use statistical models based on E-mini & VSTOXX. I have never tried, but my intuition tells me that you could predict VIX futures open pretty accurately using just those two.

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