3. What does the VIX measure? And how

Solutions

Expert Solution

VIX is the Volatility Index. It is a predictive measure of implied volatility which measures the expected price changes in S&P500 index options over the next 30 day period.

1. Options to be included in the calculation are selected. They are a range of call and put strikes in two consecutive expiry horizons around the 30-day time period. Since the time horizon is 30 days, two consecutive expiry horizons with more than 23 days and less than 37 days is used. These are known as the 'near-term' and the 'next-term'. When near-term options have less than 24 days to expiry then they are discarded and the next-term becomes the new near term. The next available expiry horizon is then, used as the new next-term. This is a weekly rollover.

2. Each option's variance which makes up the total variance of its expiration is calculated.

3. The total variance for the first and second expiration is calculated.

4. Then the 30-day variance is calculated by interpolating the two variances.

5. The square root of this variance is taken to get the standard deviation and then, multiplied by 100, to finally, get the VIX.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

a. What does GDP measure? b. How well does GDP measure the well-being of a society?

1. What is the equity multiplier? What does it measure? If the equity multiplier is 3,...

1. What is the equity multiplier? What does it measure? If the equity multiplier is 3, what does that mean? Explain the relationship between the equity multiplier and profitability?

For Bone histomorphometry How does this technique work and what does it measure? What equipment is...

For Bone histomorphometry How does this technique work and what does it measure? What equipment is required for this technique? How is the experiment/measurement performed? What do the typical results look like? (you may want to include images here)

Why does VIX futures usually show a contango pattern?

What is the ^VIX index and why is it so important? How do you explain the...

What is the ^VIX index and why is it so important? How do you explain the solutions and difference of Logarithmic and Polynomial solutions?

Explain the concept of Bond Duration, what does it measure, how is it calculated, how is...

Explain the concept of Bond Duration, what does it measure, how is it calculated, how is it used, and what inputs impact its calculation? (finance question)

1. What is the Herfindahl-Hirshmann Index? How is it calculated? What does it measure? How do...

1. What is the Herfindahl-Hirshmann Index? How is it calculated? What does it measure? How do Federal regulators use it when examining horizontal mergers under antitrust statutes?

Why does AASB 3 provide a choice in how to measure non-controlling interests?

Quantitative backscattered electron imaging How does this technique work and what does it measure? What equipment...

Quantitative backscattered electron imaging How does this technique work and what does it measure? What equipment is required for this technique? How is the experiment/measurement performed? What do the typical results look like? (you may want to include images here)

Micro-computed tomography How does this technique work and what does it measure? What equipment is required...

Micro-computed tomography How does this technique work and what does it measure? What equipment is required for this technique? How is the experiment/measurement performed? What do the typical results look like? (you may want to include images here)

Subjects