Thursday, August 2, 2007

Some Interesting Uses For The VIX

David Merkel at The Aleph Blog has put up several great pieces on the VIX (the CBOE Volatility Index):
In this post, he relates changes in the VIX to changes in the S&P (a % change in the VIX results in about a 10 basis point change in the S&P in the opposite direction), with an R-squared of about 50% (i.e. variation in the VIX explain about 50% of the variation of the S&P). He also notes the mean-reversion in the VIX, and that the S&P tends to be high when the VIX is low (and vice-versa).

He lays out some of the math of VIX mean reversion here (caution - serious nerd alert ahead), and gives a few applications here (including a slick way of using implied vcolatility to get beta).
And yes, he's been added to the blogroll.

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