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AVIX: An Improved VIX Based on Stochastic Interest Rates and an Adaptive Screening Mechanism

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  • Zhenlong Zheng
  • Zhengyun Jiang
  • Rong Chen

Abstract

An improved model‐free implied variation index (AVIX) is proposed in this article. The AVIX is developed under a generalized semi‐martingale process with stochastic interest rates. An adaptive option screening mechanism is proposed to accommodate different market conditions. The effect of dividend protection is also considered. An empirical study of the China 50 ETF option market suggests that the AVIX is a better barometer of aggregate implied variation and investor sentiment than the traditional VIX. It reacts to market changes more rapidly and more sensitively. The AVIX also contains more information about future volatility and provides a more efficient forecast of future realized volatility. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:374–410, 2017

Suggested Citation

  • Zhenlong Zheng & Zhengyun Jiang & Rong Chen, 2017. "AVIX: An Improved VIX Based on Stochastic Interest Rates and an Adaptive Screening Mechanism," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(4), pages 374-410, April.
    • Handle: RePEc:wly:jfutmk:v:37:y:2017:i:4:p:374-410
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    Cited by:

    1. Jupeng Li & Xiaoli Yu & Xingguo Luo, 2019. "Volatility index and the return–volatility relation: Intraday evidence from Chinese options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(11), pages 1348-1359, November.
    2. Linyu Wang & Yifan Ji & Zhongxin Ni, 2024. "Which implied volatilities contain more information? Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1896-1919, April.
    3. Qiao, Gaoxiu & Teng, Yuxin & Li, Weiping & Liu, Wenwen, 2019. "Improving volatility forecasting based on Chinese volatility index information: Evidence from CSI 300 index and futures markets," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 133-151.
    4. Xingguo Luo & Doojin Ryu & Libin Tao & Chuxin Ye, 2024. "Price monotonicity violations during stock market crashes: Evidence from the SSE 50 ETF options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(3), pages 533-554, March.
    5. Emrah Koçak & Umit Bulut & Angeliki N. Menegaki, 2022. "The resilience of green firms in the twirl of COVID‐19: Evidence from S&P500 Carbon Efficiency Index with a Fourier approach," Business Strategy and the Environment, Wiley Blackwell, vol. 31(1), pages 32-45, January.
    6. Chen, Xiaoyijing & Liu, Siyuan & Xu, Zailin & Yu, Mei, 2024. "Asymmetry in option implied volatility and yield: Evidence from China's ETF options market11Xiaoyijing Chen, PhD candidate. Research Interests: option pricing, financial derivatives. Siyuan Liu, maste," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    7. Bin Wu & Pengzhan Chen & Wuyi Ye, 2021. "Jump activity analysis of the equity index and the corresponding volatility: Evidence from the Chinese market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(7), pages 1055-1073, July.

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