BeVIXed: Trading Fear in the Volatility Complex

Abstract

We explain the evolution of the volatility market and present the infamous day of ‘Volmageddon’ as an insightful case study. Our survey focuses on the pricing and trading of volatility-linked assets, highlighting the impact of mechanical hedging in markets for futures and higher-order derivatives. We supplement the vast statistical analysis of volatility derivatives with a financial economist’s perspective.

Keywords

• Volmageddon
• volatility derivatives
• hedging
• VIX