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FIX: The Fear Index—Measuring Market Fear

  • J. Dhaene
  • J. Dony
  • M. B. Forys
  • D. Linders
  • W. Schoutens
Conference paper
Part of the Springer Proceedings in Mathematics & Statistics book series (PROMS, volume 19)

Abstract

In this paper, we propose a new fear index based on (equity) option surfaces of an index and its components. The quantification of the fear level will be solely based on option price data. The index takes into account market risk via the VIX volatility barometer, liquidity risk via the concept of implied liquidity, and systemic risk and herd behavior via the concept of comonotonicity. It thus allows us to measure an overall level of fear (excluding credit risk) in the market as well as to identify precisely the individual importance of the distinct risk components (market, liquidity, or systemic risk). As a an additional result, we also derive an upperbound for the VIX.

Keywords

Option Price Systemic Risk Call Option Implied Volatility Distortion Function 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • J. Dhaene
    • 1
  • J. Dony
    • 2
  • M. B. Forys
    • 3
  • D. Linders
    • 1
  • W. Schoutens
    • 3
  1. 1.Department of Accountancy, Finance and InsuranceKatholieke Universiteit LeuvenLeuvenBelgium
  2. 2.Faculty of Business and EconomicsKatholieke Universiteit LeuvenLeuvenBelgium
  3. 3.Department of MathematicsKatholieke Universiteit LeuvenLeuvenBelgium

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