Reminded of this by resident vol master @JessicaNutt96
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I don’t know who needs to hear this but variance is a convex function of volatility and Jensen’s inequality implies that your chart comparing spot VIX to trailing realized vol is bullshit.
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Spot VIX is useless for anything but bait&switch. A product that settles linearly to a formula that estimates quadratic is just a clever way to pick pockets of retail investors fixated on charts like those.
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Absolute BS. Not a lot of people realize that unfortunately
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Is VRP a lie
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No but you should compare ATM implied vol to your forecast of realized vol. VIX includes a premium for the convexity of variance which means it is always larger than ATM vol.
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Thank you for reminding me of how many years separated I am from pure mathematics.
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How about VIX^2 vs realized variance?
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Amplify the reasoning in the 3d
End of conversation
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Nacho hazte Twitter de verdad para poder citarte en estas cosas
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