When I was in the process of publishing the winners of the 2008 Volatility Awards last week, I paused before finalizing Don Fishback’s Market Update as the recipient of the award for Best New Blog with a Volatility Focus. While there are many excellent blogs out there, my hesitation had nothing to do with the quality of Don’s site, which you should judge for yourself. Instead I wondered what would happen if hundreds of curious readers clicked over to the site and Don just happened to be taking a couple of weeks off for the holidays.
Well…Don is back and has a post up that is the early leader in the volatility post of the year category (should I decide to invent such a beast at some point.) Starting with the not-so-pity title of Probability, VIX, Bad Math, and Reporters Who Don’t Know the Difference: Measure, Don’t Model, Don Addresses some of the mathematical shortcomings of the Kearns and Tsang article, VIX Fails to Forecast S&P 500 Drop, Loses Followers and argues from the specific to the general case. For dessert, Don Serves up a nifty tool to help readers visualize the various probabilities and distributions associated with the VIX and the SPX.
Assuming the VIX does not spike back up to the 80s again, I will use this space to talk a lot more about probabilities and distributions in 2009 – and their application to the study of volatility.
the Vix only fails for people because they use it wrong. Like everything else, it takes part in the unfolding narrative of the market. Statistical analysis can only reveal so much. An observant trader who is paying attention will get far more out of it.
ReplyDeleteVix with fork
Today's pop in the vix was a fairly easy call. There should be more to come.
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