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Predicting stock market volatility: A new measure

Predicting stock market volatility: A new measure The CBOE Market Volatility Index (VIX) is an average of S&P 100 option (OEX) implied volatilities. As such, it represents a marketconsensus estimate of future stock market volatility.’ The computation and dissemination of VIX on a real-time basis offers practitioners and academics an important new source of information. Practitioners, for This research was supported by the Futures and Options Research Center at the Fuqua School of Business, Duke University. We gratefully acknowledge the helpful comments and suggestions of Fischer Black, Mark Rubinstein, and two anonymous referees. We also thank participants at the University of Pennsylvania, the University of Texas at Dallas, and the University of Waterloo/KPMG Peat Marwick Thorne seminars, as well as attendees of the 1993 Conference on Financial Innovation: 20 Years of BlacWScholes and Merton (Duke University) and the 1994 Berkeley Program in Finance, Ojai Valley, California. ‘Since OEX options are the most actively traded index options, VIX promises to be the U.S. stock market volatility “standard upon which derivative contracts may be written. A variety of option or embedded-option security positions are sensitive to changes in expected stock market volatility. Volatility derivatives, therefore, could be used to offset this exposure. Whaley (1993) describes the economic http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Futures Markets Wiley

Predicting stock market volatility: A new measure

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References (36)

Publisher
Wiley
Copyright
Copyright © 1995 Wiley Periodicals, Inc., A Wiley Company
ISSN
0270-7314
eISSN
1096-9934
DOI
10.1002/fut.3990150303
Publisher site
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Abstract

The CBOE Market Volatility Index (VIX) is an average of S&P 100 option (OEX) implied volatilities. As such, it represents a marketconsensus estimate of future stock market volatility.’ The computation and dissemination of VIX on a real-time basis offers practitioners and academics an important new source of information. Practitioners, for This research was supported by the Futures and Options Research Center at the Fuqua School of Business, Duke University. We gratefully acknowledge the helpful comments and suggestions of Fischer Black, Mark Rubinstein, and two anonymous referees. We also thank participants at the University of Pennsylvania, the University of Texas at Dallas, and the University of Waterloo/KPMG Peat Marwick Thorne seminars, as well as attendees of the 1993 Conference on Financial Innovation: 20 Years of BlacWScholes and Merton (Duke University) and the 1994 Berkeley Program in Finance, Ojai Valley, California. ‘Since OEX options are the most actively traded index options, VIX promises to be the U.S. stock market volatility “standard upon which derivative contracts may be written. A variety of option or embedded-option security positions are sensitive to changes in expected stock market volatility. Volatility derivatives, therefore, could be used to offset this exposure. Whaley (1993) describes the economic

Journal

The Journal of Futures Markets – Wiley

Published: May 1, 1995

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