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Thoughts on the VIX Fear Index

In: Investing in the Modern Age

Author

Listed:
  • Rachel E. S. Ziemba

    (Roubini Global Economics, UK)

  • William T. Ziemba

    (University of British Columbia, Canada)

Abstract

The VIX is the standard deviation of the implied volatility of S&P500 index options that are close to the money and not far into the future. Put options dominate in the various VIX calculations for the US equity and other markets. High put prices lead to high fear reflected through high VIX values. The VIX is a weighted average of various implied volatilities of various options whose volatilities are backed out based on their prices by some option pricing model. The VIX can vary from a low in the 10% range to the high 20s into the low 30s for violent stressful markets and as high as 70% to 100%+ in market crashes. In 1990, the VIX of the Nikkei Stock average of 225 stocks (price weighted like the Dow Jones) was in the 70% plus area for months and months. Figure 19.1 has the spot VIX graphs for 2002-2012 and Table 19.1 has the VIX futures as of September 30, 2012…

Suggested Citation

  • Rachel E. S. Ziemba & William T. Ziemba, 2013. "Thoughts on the VIX Fear Index," World Scientific Book Chapters, in: Investing in the Modern Age, chapter 19, pages 229-238, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814504751_0019
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