What is VIX, the Volatility Index?

Panic Index = CBOE Volatility Index

VIX Index

VIX is made up of CBOE (

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In the research papers of Professor Zhou Kun, Professor Jiang Wanjun and Li Jingrui (Does VIX Truly Measure Return Volatility?) ^[1] , they proved from the theoretical and empirical perspective that, under normal conditions without assumptions, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) significantly underestimates the actual market volatility. In particular, the greater the market volatility, the more severe the situation of underestimation. This has a negative impact on investors who purchase VIX financial products that cannot be ignored.

After rigorous mathematical derivation, Professor Zhou et al. Confirmed that the reason for the VIX deviation is the third-order moment, because VIX is actually a linear combination of moments of different classes, not just a coefficient of fluctuation. When the system risk increases, the number of investors who are short on the stock market increases, and the third-order momentum is negative. In other words, the greater the stock market volatility, the higher the negative value of the third-order momentum. Affected by this negative value, VIX therefore underestimated the actual market fluctuations.

To solve the serious lack of VIX, Professor Zhou et al. Proposed another calculation formula, called Generalized Volatility Index (GVIX). GVIX is directly derived from the definition of the coefficient of volatility without the need to assume conditions. Like VIX, GVIX is a forward-looking index, but it is not affected by any higher-order momentum. Therefore, GVIX can fully express the true volatility of the market. GVIX index commodities (such as futures, options, or ETFs) can provide investors with more accurate hedging tools.

VIX and GVIX (3 photos)