Fund Volatility Index using equity market state prices

Michael J. O'Neill*, Zhangxin Liu

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

Abstract

The Fund Volatility Index (FVX) is proposed as a forward measure of volatility with applications in fund hedging and risk management. The method applies equity market state prices to individual fund pay-offs. FVX is validated as a predictor of short-term realised volatility for 30 exchange traded funds. Performance of the method is compared with existing methods using a data set of 14925 non-traded funds. FVX has lower bias and higher forecast accuracy than existing methods. As a more general measure, it allows for incorporation of terms to capture individual fund skewness and projection of higher moments of returns.

Original languageEnglish
Pages (from-to)837-853
Number of pages17
JournalAccounting and Finance
Volume57
Issue number3
DOIs
Publication statusPublished - Sep 2017

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