Volatility index
Volatility index | Underlying | Observation period |
---|---|---|
VDAX NEW | DAX | 30 days |
VDAX | DAX | 45 days |
VSTOXX | EURO STOXX 50 | 30 days |
VSMI | SMI | 30 days |
VIX | S&P 500 | 30 days |
A volatility index measures the implied volatility (ie the volatility to be expected in the future, in contrast to the historical volatility of the past) of a stock market index , i.e. the fluctuation intensity currently expected by market participants for a certain period in the future. The VDAX-NEW measures the implied volatility of the DAX for the next 30 days. For better comparability, the index levels are usually quoted in annualized form; For example, in the case of the VDAX-NEW, the implied volatility determined for 30 days is extrapolated to one year by multiplying it ( root-T rule ).
Volatility indices on equity indices are negative with their underlying reference assets correlated . A high index level indicates a restless market, low values suggest a development without strong price fluctuations. The index level does not provide any information about the direction of the change, i.e. rising or falling prices, but the historically highest index levels were achieved at the height of financial crises . Volatility indices are therefore also known as “fear barometers”. In a mean reversion process, they always strive back to a mean index level.
With "modern" volatility indices such as VDAX-NEW, VSTOXX , VIX or VSMI , the implied volatility of the underlying is calculated as the root of the expected squared variance of a special portfolio of real options on the respective stock index traded on futures exchanges . This means that the indices can be replicated , which facilitates the development of derivatives , which in turn have the volatility index itself as an underlying. Volatility can thus be made tradable as a separate asset class .
Web links
- Volatility measurement on a refined basis: the VDAX®-NEW. Goldman Sachs, May 2005, accessed November 8, 2009 . (Calculation of the VDAX-NEW explained as an example.)
- VDAX-NEW - The new volatility index of Deutsche Börse. (PDF; 169 kB) Deutsche Börse AG, January 2006, accessed on November 7, 2009 .
- Guide to the volatility indices of Deutsche Börse. (PDF; 163 kB) Deutsche Börse AG, January 2007, accessed on November 4, 2009 .