Enrique Sentana, 16 September 2016

Determining which risks are worth taking is one of the key problems facing financial market participants. Central to this is the time-varying nature of volatility. This column examines the Chicago Board Options Exchange volatility index, VIX, which has become the standard measure of volatility risk. Complementary approaches to pricing VIX derivatives are considered, and the tumultuous economy since the Great Recession is used to assess the empirical performance of the different models.

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