EAN: 9783961468164

MARKET MANIPULATION IN THE VIX ARE ILLIQUID OPT...

This book investigates market manipulation in the volatility index VIX. The VIX is known as
fear-gauge of the US stock market and its derivatives are an established hedge against negative
market sentiment. Characteristically  the VIX is an index whose value is computed by a special
formula based on relatively illiquid S&P 500 options. In contrast  derivatives on the VIX are
heavily traded and are settled in cash once a month based on option prices determined in an
auction. This short time frame makes the VIX vulnerable as manipulators can move the underlying
option prices to an abnormal price level on purpose to receive an artificially high cash
settlement. This book explores approaches to make the effects of manipulation measurable. For
this purpose  four measures are deduced. The measures are based on the index fluctuation range
its intraday deviations from the opening value  the put call ratio of the underlying options
and their trading volume. The empirical results reveal strong indications of manipulation. The
analysis is concluded by a discussion of alternative explanations of the results observed and a
sketch on how to impede manipulation or change the VIX structure.

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