The VIX index was created by the CB?E (Chicag? B?ard ?pti?n Exchange) in
1993 and it aims at estimating the implied v?latility ?f S&P 500. M?re
precisely, VIX is an index ?f implied v?latility ?f 30-day ?pti?ns ?n the
S&P 500 calculated fr?m a wide range ?f call and puts (www.invest?pedia.c?m).
The index itself and the derivatives written ?n it have drawn great attenti?n n?t
?nly fr?m academics but practiti?ners as
well,f?r vari?us reas?ns. ?ne ?f th?se reas?ns is that the index is f?rward l??king
and it is widely used as a measure ?f market risk. Because ?f this use, the
index is als? called “fear gauge”.
N?wadays, the VIX is really imp?rtant especially f?r invest?rs. It can n?t
?nly be used as a measure ?f h?w much the market thinks the S&P 500 will
fluctuate in the 30 days (www.cb?e.c?m), but it can als? be used t? hedge the
risk ?f investments in the st?ck market by taking the ?pp?site p?siti?n t? the
VIX pr?ducts (derivatives ?r ETFs). Furtherm?re, it can be used f?r speculati?n
reas?ns, as an invest?r can bet ?n the increase ?r the decrease ?f the index.
B?th the issues that we plan t? study (causality and predictability) have
captured many researchers’ attenti?n.
This thesis structure will be as f?ll?ws. In the First Chapter, we
present the index and the way it has been calculated. VIX was based ?n S
100 till 2003, since then is based ?n the S 500. Furtherm?re, we review
the basics ?f the derivatives written ?n the VIX and its ETFs. M?re?ver, we
present details ab?ut the main reas?n ?f the p?pularity ?f this index and its
uses (hedging, speculati?n and f?recasting). Furtherm?re, we have c?llected s?me
data ?n the am?unt ?f derivative c?ntracts traded per day and we represent
charts which c?mpare the cl?sing prices ?f VIX index with the cl?sing prices ?f
S 500. In the last part ?f the chapter, we have studied the relati?n between
VIX and the st?ck market.
In Chapter 2, we are c?nducting a literature review ?n the causality
between the VIX sp?t and the VIX future. We have studded the summary statistics
?f the index and its futures and in the sec?nd part ?f this chapter we have als?
examined if there is a l?ng run equilibrium between the VIX sp?t price and the
VIX future price (Enger Granger c?integrati?n test).
In Chapter 3 we c?nduct an?ther ec?n?metric test, the vect?r err?r c?rrelati?n
m?del (VECM) which has been suggested als? fr?m Enger and Granger. Finally, the
w?rk’s findings are summarized and discussed.