Chart of the Day: Convergence Between VIX and V2X

By Martin T., Macronomics

“To every action there is always opposed an equal reaction.” – Isaac Newton

The last few days have seen a pick up in demand for downside protection on the S and P500, when it seems no one at the moment has nothing left to protect against in Europe, which explains somewhat the recent convergence move between the VIX and its European equivalent V2X – source Bloomberg:

Please note Futures have yet to realise this convergence.  As a reminder from our March conversation (The two main drivers of equity volatility), and as indicated by our Global Macro friends at Rcube at the time:

“The two main drivers of equity volatility are for us, credit availability (Merton model) and revisions of earnings forecasts estimates. Equity volatility is also logically driven by the direction and the magnitude of revisions of forward earnings estimates. In 2010 and again in 2011, equity vol spiked while earnings forecasts remained strong.”

The convergence between VIX and its European equivalent V2X – Source Bloomberg

“Hesitation increases in relation to risk in equal proportion to age.” – Ernest Hemingway

 

-------------------------------------------------------------------------------------------------------------------

Got a comment or question about this post? Feel free to use the Ask Cullen section or leave a comment in the forum.

Martin T., Macronomics

Martin T. is a credit specialist with a London based bank. During his career he's had different roles within various banks, covering everything from FX to High Grade Bonds. He has always been passionate about markets and particularly on Macro trends.

More Posts - Website

Comments

  1. Is the V2x term structure as steep as the VIX? I understood that at least part of the reason for a low near term VIX was that investors were pricing the later vix contracts at a premium (anticipating problem in later months and not today).

    And so why doesn’t the convergence indicate that Europe believe that problems will happen at some later and not now?