Model-Free Volatility Indexes in the Financial Literature

Download or read book Model-Free Volatility Indexes in the Financial Literature written by Maria T. Gonzalez-Perez and published by . This book was released on 2013 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article describes the primary uses of the VIX index in the financial literature, offering for the first time a joint view of its successes and failures in key financial areas. VIX is a model-free volatility index that measures the investor "fear" gauge due to its significant and negative relationship with S &P 500 return dynamics, which justifies its use as a proxy for market risk and volatility. This article focuses on the most frequent uses of VIX, namely, as (1) a financial product to hedge a portfolio against volatility risk; (2) a market risk measure used to analyze risk flows from financial markets and to relate private and public risks; and (3) a volatility measure to estimate the spot volatility dynamics, the volatility risk premium and volatility jumps. This survey offers an entre for researchers who consider VIX as a proxy for volatility and/or risk.