Human Computer Interaction, Misrepresentation and Evolutionary Homomorphisms in the VIX and Options-Based Indices in Incomplete Markets with Unaggregated Preferences and NT-Utilities Under a Regret Minimization Regime

  • Michael I. C. Nwogugu


While options-based indices have grown in popularity, there are many structural problems inherent in the associated index calculation methodologies, which create substantial tracking errors. Many Synthetic ETFs/Funds are constructed with swaps and or futures contracts, and have evolved into quasi-indices. This chapter contributes to the existing literature by: (i) critiquing the calculation methods for options-based indices (Futures Indices, VIX Index and related indices, Buy-Write Indices); (ii) introducing the inherent biases in such indices which may raise issues of “suitability” and misinformation; (iii) showing that these options-based indices don’t evolve in tandem with, and thus don’t represent, the markets that they are supposed to represent, partly due to the equivalents of reproduction (e.g. the timing, rates of, and amount of creation of options contracts); natural selection (e.g. changes in the demand for, and supply of options contracts that constitute the index); recombination (e.g. the effects of the creation and use of options spreads — which are combinations of options contracts); and mutation (e.g. changes in the inherent risk and or relative risk of a group of options contracts on one asset); and (iv) introducing new critiques and Spatio-Temporal Cognitive Biases in the calculation methods for Indices.


Spatio-Temporal Cognitive Biases Misrepresentation VIX Buy-write indices Homomorphisms Options-based indices Unaggregated preferences Regret minimization regime Nonlinear risk Complex systems 


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© The Author(s) 2018

Authors and Affiliations

  • Michael I. C. Nwogugu
    • 1
  1. 1.EnuguNigeria

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