Market manipulation refers to intentional actions taken to distort the normal functioning of financial markets, often to benefit specific individuals or entities at the expense of others.
Wow. I've always heard that Vix Settlement is manipulated, but this is quite eye opening. The other thing I know is that the trading desk of the NY Fed uses Vix to tamp down market volatility during exceptionally stressful times via the relationship between the US Dollar / Currency swaps and Vix. Powell once even alluded to the NY Fed Trading Desk "closing Vix positions" to wind down market support after a big down move in a speech once - I can never find any record of it written, but I heard it with my own ears when he said it. I want to say it was in 2018. It's hard to expect the Fed or anyone else to care about manipulation in the index when they do it too....
Manipulated intentionally or not, the problem originates from the inclusion of OTM, often illiquid options in the calc of VIX. This paper https://www.bis.org/publ/bisbull95.pdf also pointed out that since quotations for the OTM options are used, in a down move, the increase in VIX can be exacerbated.
Yeah, that makes sense. Scott Nations has indexes that fix a lot of that problem - I personally like to use the TDEX (Tail Hedge Index) as my panic indicator.
Wow. I've always heard that Vix Settlement is manipulated, but this is quite eye opening. The other thing I know is that the trading desk of the NY Fed uses Vix to tamp down market volatility during exceptionally stressful times via the relationship between the US Dollar / Currency swaps and Vix. Powell once even alluded to the NY Fed Trading Desk "closing Vix positions" to wind down market support after a big down move in a speech once - I can never find any record of it written, but I heard it with my own ears when he said it. I want to say it was in 2018. It's hard to expect the Fed or anyone else to care about manipulation in the index when they do it too....
Manipulated intentionally or not, the problem originates from the inclusion of OTM, often illiquid options in the calc of VIX. This paper https://www.bis.org/publ/bisbull95.pdf also pointed out that since quotations for the OTM options are used, in a down move, the increase in VIX can be exacerbated.
Yeah, that makes sense. Scott Nations has indexes that fix a lot of that problem - I personally like to use the TDEX (Tail Hedge Index) as my panic indicator.