Reducing Synthetic VIX Lag by Smoothing Input Prices

Summary

This note describes a smoothed version of a synthetic volatility indicator. It aims to make volatility changes easier to assess while limiting the delay that can result from smoothing an already calculated indicator. The method smooths prices before using them in the synthetic VIX calculation, with JMA chosen for its responsiveness.

The document provides a design explanation rather than performance evidence: it gives no test results, parameter settings, or comparison of lag and responsiveness. It also stresses that synthetic VIX measures increases or decreases in volatility and does not indicate market direction. Its use should therefore be limited to volatility assessment rather than treating its signal as a buy or sell direction on its own.

Key ideas

• The indicator smooths input prices before calculating synthetic VIX.
• JMA is selected to smooth prices while aiming to remain responsive.
• Smoothing the inputs is intended to avoid extra delay from smoothing the calculated indicator.
• Synthetic VIX reflects volatility changes and does not signal market direction.

Tags

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