Discussion of Volatility of Volatility at RMC in Hong Kong on Dec. 1

On December 1st in Hong Kong at the First Annual CBOE Risk Management Conference (RMC) Asia, two expert speakers – William Chan, Equity Derivatives Strategist, Bank of America Merrill Lynch, and Michael Fagan, Chairman, Levitas Capital – will discuss the topic of Volatility of Volatility, and (1) Historical observations and interpretations for “vol-of-vol” surfaces, (2) Trading and hedging applications, depending on client objectives, and (3) A case study approach. Below is some analysis I did to prepare for the presentations.

CHARTS SINCE MID-2014

The averages of the daily closing values since mid-2014 in the two charts below are as follows:

131.4               Historic Volatility of VIX Index (30 Trading Days)
92.7                 CBOE VVIX Index www.cboe.com/VVIX
128.3               CBOE SKEW Index www.cboe.com/SKEW
15.8                 CBOE Volatility Index® (VIX®)
13.4                 Historic Volatility of S&P 500 Index (30 Trading Days)

Note that the average levels for the VIX Index usually have been higher than the historic volatility of S&P 500 Index (over 30 trading days or 20 trading days), and it is suggested that this is because of the volatility risk premium for stock index options in the United States. In Hong Kong I plan to ask about the relationships between implied and realized volatility in both the U.S. and Asia.891 - SKEW VVIX VIX line

It is interesting to note the relationships between the price and volatility charts above and VIX options and futures volume charts below. This past August there was anxiety about falling prices in the Chinese stock markets, the VIX Index rose above 40 and the VVIX rose above 168, and there was record average daily volume in a month for both S&P 500 (SPX) options (1,325,639) and for VIX options (990,289). In times of market stress many investors turn to SPX options and VIX options and futures to help manage their portfolio risk.892 VIX volume Oct

MORE INFORMATION

To learn more about products to manage volatility, please visit www.cboe.com/volatility and www.cboe.com/benchmarks.

You may view the agenda and register in advance for the First Annual CBOE Risk Management Conference (RMC) Asia at http://www.cboermcasia.com