John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: John Pitera who wrote (5862)	3/19/2002 9:47:27 PM
From: OX	Read Replies (1) of 33421

this following stmt is true in general about "volatility"... "Volatility is mean reverting. This means that no matter how far volatility may stray above or below its long-term mean in response to short-term events (such as a terrorist attack sending volatility higher, or a slow holiday week sending volatility lower), it will eventually revert to its long-term mean." but not true specifically for the VIX since VIX is based on the IV of OEX. McMillan says in his OSI book that after the '87 crash, OEX put premiums became permanently more expensive (skewing (put) volatility). so technically, correct statement about volatility; not as correct when applied to VIX. of course, in the grand scheme of things, there really isn't that much history to VIX so this is purely academic :-) ----- the other theory I have, which i haven't spent anytime trying to prove or disprove (so please, everyone try to knock it down), is that VIX is low due to abnormally low interest rates (in particular 90day tbills). since short term rates are an integral factor in option pricing. However, I rather like the "overwhelming convertible bond" theory much better.

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