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Analyzing Intraday Movement of VIX Derivatives

MSRI-UP 2011: Mathematical Finance June 21, 2011 - July 24, 2011

July 22, 2011 (10:00 AM PDT - 11:00 AM PDT)
Speaker(s): Michelle Bongard, Joseph LaBriola, Vishnu Thaver
Location: MSRI: Baker Board Room
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Abstract

Many investors would like to invest in the VIX, a measure of implied volatility of stocks in the S&P 500 index, as a way to hedge against downturns in the stock market. While the VIX is not tradable, there exist tradable derivatives on the VIX that investors can use as hedging instruments. Two such derivatives are the VXX and VXZ, both exchange- traded notes (ETNs) based on futures contracts on the VIX. Our project centered around analyzing intraday data on the VIX, VXX and VXZ to better understand these derivatives. We used various methods to model the intraday behavior of the VXX and VXZ in the hopes that our analysis could lead to a successful trading strategy. Implementing these models on future intraday data on the VXX and VXZ confirmed the veracity of our models.

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