Date Author Names Title
Mixon, Scott, Onur, Esen

Volatility Derivatives in Practice: Activity and Impact

NEW TITLE: Derivatives Pricing When Supply and Demand Matter: Evidence from the Term Structure of VIX Futures
Journal of Futures Markets, Volume 39, pp. 1035-1055

  • Derivatives based on the volatility of certain market prices have become extremely active since 2008, but part of the market is traded via swaps and exhibited little transparency before the advent of regulatory data.

  • We find that the magnitude of risk transfer conducted via positions in the variance swap market is comparable to the risk transfer conducted via the listed option market – over USD 1 billion in notional vega outstanding in each.

  • We find that VIX futures are used mostly for near-dated transactions and are actively traded, but swaps are used for longer-dated positioning and trade less frequently.

  • Asset managers tend to be net long volatility exposure, with dealers and leveraged funds net short volatility.