An example of the linear regression library, showing the regression of VX futures on the VIX . The beta might help you weight VX futures when hedging SPX vega exposure. A VX future has point multiplier of 1000, whereas SPX options have a point multiplier of 100. Suppose the front month VX future has a beta of 0.6 and the front month SPX straddle has a vega of 8.5. Using these approximations, the VX future will underhedge the SPX straddle, since (0.6 * 1000) < (8.5 * 100). The position will have about 2.5 ($250) vega . Use the R^2 (coefficient of determination) to check how well the model fits the relationship between VX and VIX . The further from one this value, the less useful the model.
(Note that the mini, VXM futures also have a 100 point multiplier).
(Note that the mini, VXM futures also have a 100 point multiplier).
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Using difference instead of log returns, which is more intuitive since VIX/VX are already expressed as percentages.
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cosmetic changes
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