XIV graph and data since VIX futures available (2004)

Using the same futures data used to calculate the VXX a fellow yahoo VXX message board poster calculated the historic XIV values.

The idea is good but the model accuracy can be improved by using more data available. For that reason I developed a XIV pricing model that uses the same basic idea, with more learning data (more market data comes available each day). Due to that it has a much better accuracy. Additionally it also considers its tracking error and the management fees.

Anyways to understand how this simplified model originally was made I copy his e-mail that explains in his own words what he did:

jrv,

Attached is the chart of the daily inverse moves of XIV, along with your modified spreadsheet reversing the VXX daily moves. The chart appears to be accurate, it is almost right on with the XIV prices going back to its launch.

check it out, maybe post in on your blog.

zfunk (huzd_meg_a_gyikomat)

I reviewed how he calculated the XIV and it is based on the XIV definition, whose goal is to replicate the inverse of the daily percentual VXX moves. So if the VXX goes down 1% the XIV goes up 1%. So with the daily percentual VXX changes he could calculate the XIV through all the history since VIX futures were available, note that his calculation is right because it corresponds very closely to the XIV market values.

It is interesting to note that the VXX went down from over 2000 to 40 while the XIV went up from 1.36 to 7.26 in the same period.

Thanks for the great contribution zfunk !

Here below is the graph, and the VXX processed data he used to calculate the XIV can be downloaded here:

About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.
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9 Responses to XIV graph and data since VIX futures available (2004)

  1. Mike says:

    jrv, thank you for posting this spreadsheet! Very valuable and saved me a ton of work.

    I’ve been working to come up with a volatility strategy using XIV/VXX. It seems like the volatility of volatility (or the standard deviation of daily VIX moves) provides very useful information. You can check out my latest findings here: http://dontfearthebear.com/2011/09/02/early-retirement/

    Thanks again and best of luck to you!
    Mike

  2. Damian says:

    Hi jrv,

    Great posts… I enjoy your point of view and ideas. Keep up the good work.

    I was wondering if you had the mid term futures data by any chance (vxz)? I have back to 06′ from a bloomberg terminal from index.

    but was wondering if you or anybody attempted to construct it. the formula would be the same as synthetic VXX except instead of 1,2nd month inputs it would be 3rd and 7th month (as the 4th, 5th months just sit idle in the calculation)

    thanks a lot, mid term volatility has often shown itself to do a much better job hedging portfolio risks. It is more negatively correlated and has more favorable/predictable term structure for a long hold. Feel free to contact me via email to discuss trying to work on this if you are interested. .. [email protected]

    Best,

    Damian

  3. jrv says:

    thanks Damian, I have not constructed a pricing model with the vxz data, if I do it I’ll contact you

  4. jrv says:

    Thanks Mike, really interesting indeed, makes sense, the volatility of the volatiliy is indeed still quite high, the vix moving from 30 to 40 or more in a few days time…, I might unload my hedges once the vix is around the 40 area again.

  5. Damian says:

    Thanks jrv!

  6. Amir says:

    Hi jrv,

    I looked at the excel spreadsheet and i didn’t understand what the difference between the Column: VXX(market) and the Column VXX, how did zfunk calculate the VXX?

    Thanks
    Amir

  7. jrv says:

    Hi Amir,

    VXX (market) is the real market value of the vxx, based of people buying and selling in the market, it’s established by demand and offer. The other one is the theoretical value of the VXX based on the VIX futures values and the number of contracts held for each of the futures as explained here: http://investing.kuchita.com/2011/08/16/how-the-vxx-is-calculated-and-why-backwardation-amplfies-it/

    The vxx market has almost the same value as the theoretical one since if it differs hedgers hurry to buy or sell in order to make a profit, so the price in the market is constantly following the theoretical price, sometimes its a bit above or below it.

  8. Ragu Vijaykumar says:

    I’m not sure about the assumptions made for calculating XIV. Looking at recent history, there are plenty of times when XIV does not track the inverse of VXX at all. I was wondering if you had worked on how to calculate XIV from futures data instead of just relying on it to be the inverse of VXX, i.e. a VXX short?

    Also, do you know which months are used to price VXZ? Is it just months 5 and 6, but used in the same way as VXX and months 1,2, i.e. is the calculation exactly the same as VXX, but with the 1st month and 2nd month columns replaced by 5th and 6th month VIX futures data? Any insights would be greatly appreciated.

    Awesome work by the way! Love your blog.

  9. jrv says:

    Hi Ragu, the xiv calculation was just relying on the inverse of the vxx (which directly uses the vix futures). xiv does not explain how to do it in their prospectus thats a reason why i do not trust investing in it and rather directly use the vxx.

    The VXZ (S&P 500 VIX Mid-Term Futures™ Index TR) is designed to provide access to equity market volatility through CBOE Volatility Index® (the “VIX Index”) futures. Specifically, the VXZ offers exposure to a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts.

    I guess they buy the 6th and 7th and sell the 4th and 5th vix futures. This makes a big difference with the vxx since there is less contango / backwardation the more you go into the future so its quite less volatile.

    Thanks for your kind comments!
    jrv

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