Constructing VIX and SKEW Measures for China’s Equity Market

Summary

The report explains how option prices can be used to construct volatility and skew measures for the Chinese equity market. VIX represents expected volatility over a forward period, while SKEW captures the market’s pricing of asymmetric returns and tail risk. Following CBOE guidance, the authors build both measures from SSE 50 option data and describe the calculation process, including a worked date example. They compare their calculated VIX series with the exchange’s iVX and report that the two track closely.

The report then examines historical market episodes and relationships with SSE 50 returns and turnover. It finds that both measures rose or diverged during several periods of unusual market stress; returns were negatively associated with the indices, and Granger tests indicated a stronger lead from SKEW to returns than from VIX changes. The evidence is limited to the reported Chinese market sample and period. These associations and predictive tests do not establish causal or stable trading signals, and the document’s underlying paper is not reproduced in the supplied text.

Key ideas

• VIX summarizes option-implied expected volatility, while SKEW reflects pricing of return asymmetry and tail risk.
• The authors construct both measures from SSE 50 option data using CBOE guidance.
• Their calculated VIX reportedly moves closely with the exchange’s iVX series.
• Historical stress episodes coincide with rises in VIX and increases in SKEW deviation.
• The reported tests find a stronger lead from SKEW to SSE 50 returns than from VIX changes, within the studied sample.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.