Establishment And Function Of The CSI 300 VIX

The volatility is a concept used to measure the risk widely used in the field ofasset pricing and risk management, which is defined as the standard deviation of theyield over a period of time. Investors make their own investment decisions based onthe volatility of the market. The most commonly used tool to measure the level ofmarket volatility is the VIX which is the first volatility index in the world launched bythe Chicago Board Options Exchange(CBOE) in1993and based on the S&P100index. As so far the index has become a measure of the volatility of the U.S. stockmarket benchmarks and many countries have also introduced the volatility Index. Theempirical test shows that in the U.S. market, the VIX index is made up of threefunctions: first to measure the market risk; second is as The Investor Fear Gauge; andthe last is to predict stock market trends. Based on the index, CBOE launched the VIXindex futures and the VIX index options and other derivatives, investors can use thesetools to manage the asset price volatility risk.There are two methods to forecast volatility,that are historical volatility law andimplied volatility. Volatility Index above are calculated with the method of impliedvolatility in accordance with the mature and corresponding stock market options.trading background. But there is no options trading in China’s securities market, thewarrants now also withdrew from the trading market, the remaining financialinstruments containing option nature only convertible bonds, but the market pricing ofconvertible bonds tend to deviate from its theoretical price. So we choose thehistorical volatility method to the preparation of a volatility index based on the CSI300Index. The historical volatility law is summed up the law, and then using pastinformation to predict future. We select the most famous GARCH (1,1) model topredict the volatility, and the preparation of the volatility index based on the CSI300Index from January4,2006to March4,2013. By analyzing the data we find that: First, as a measure of market risk indicators the volatility index have a goodexplanation for the trend of the stock market over the same period, but the differenceis that with the U.S. Volatility Index, there is no reverse correlation between thevolatility index and the stock market；second after the last6months in2010themarket’s overall level of volatility declined, which shows that the effectiveness ofpolicies of establishing the short-mechanism; followed by reference to the CBOEanalysis methods, we find that when predicting volatility rose sharply compared to thesame day, the next trading day the stock market usually fluctuate significantly, whichfell a greater most, and thus volatility index can be used as the "investor fear index";Finally, the stage volatility Index trend observed since2006bull market peaked andbear market bottomed out and found VIX bull market peaked and bear marketbottomed out there is some reference value. End of the article corresponding policyrecommendations: First, consider introducing VIX to help investors to make decisions;Second improving the margin trading system to establish more effective shortselling mechanism; third timely introduction of stock options and other derivativeproducts to enhance the operating efficiency of the financial markets, the premise ofthe preparation of the VIX based on implied volatility; forth enhancing the educationof investor, so that investors use the VIX to measure the market risk, and play the roleof supervision by investors.