Markov Behavior of Volatility Index (VIX)

Pranav Ahluwalia | Math 7241

Introduction

The volatility index (VIX) measures the expectation of market volatility based on S&P 500 options. This paper will test the hypothesis as to whether the volatility index follows the markov property, where the value of the time series at $T(n + 1)$ is dependent only upon the value at $T(n)$.

Data and Observation

VIX time series data from January 1990 to November 2021 was procured from the chicago board of exchange website https://www.cboe.com/tradable_products/vix/vix_historical_data/.