FIX - The Fear Index: Measuring Market Fear

17 Pages Posted: 18 Jul 2011 Last revised: 18 Jan 2015

See all articles by Jan Dhaene

Jan Dhaene

Katholieke Universiteit Leuven

Julia Dony

KU Leuven - Faculty of Business and Economics (FEB)

Monika B. Forys

KU Leuven - Department of Mathematics

Daniël Linders

University of Illinois

Wim Schoutens

KU Leuven - Department of Mathematics

Multiple version iconThere are 2 versions of this paper

Date Written: July 18, 2011

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 side result we also derive an upperbound for the VIX.

Suggested Citation

Dhaene, Jan and Dony, Julia and Forys, Monika B. and Linders, Daniël and Schoutens, Wim, FIX - The Fear Index: Measuring Market Fear (July 18, 2011). Available at SSRN: https://ssrn.com/abstract=1888335 or http://dx.doi.org/10.2139/ssrn.1888335

Jan Dhaene

Katholieke Universiteit Leuven ( email )

Naamsestraat 69
Leuven, 3000
Belgium

Julia Dony

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Monika B. Forys

KU Leuven - Department of Mathematics ( email )

Celestijnenlaan 200 B
Leuven, B-3001
Belgium
+3216322276 (Phone)

HOME PAGE: http://www.kuleuven.be/wieiswie/nl/person/00074950

Daniël Linders

University of Illinois ( email )

306 Altgeld Hall,
1409 West Green Street
Champaign, IL 61822
United States

Wim Schoutens (Contact Author)

KU Leuven - Department of Mathematics ( email )

Celestijnenlaan 200 B
Leuven, B-3001
Belgium

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