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I'm trying to determine a reasonable amount of SPX short deltas to hedge a short vol position. To clarify, do you mean regress VIX against M1 and M2 futures? How would this be used to determine the level of VIX corresponding to a hypothetical SPX price change?

I've looked into the local vol model, and it's one way to do the "comprehensive approach" I described in my OP. You would use the local vol model to estimate changes in implied variance at each strike as a function of the SPX price change, and then use those numbers to re-compute the VIX. That...

The log price changes are normally distributed, not the price itself. If IV is 100%, then the implied annual 1SD log price change would be 1. If the current price is 100, then a 1SD down move would be 100*exp(-1) = 37. A 2SD down move would be 100*exp(-2) = 13.5, and so on. It will go to zero...

While it's true that regressing VIX against 30D realized vol has much more explanatory power (I got an R^2 of 0.9 using close-to-close and data since 2004), the problem is this measure is slow moving and does not capture the up/downside asymmetry in SPX price changes. Seems like it would be...

The simple linear model actually has decent explanatory power, but regressing changes in VIX against changes in realized vol does not, although I haven't considered the asymmetry between down/upside vol. The local volatility model could be something to look at, thanks.

Can you elaborate on what you mean by "a better model than implied volatility"? I assume it means a model that's not Black Scholes.

Adding a quadratic term to the model is insignificant (R^2 is virtually unchanged). I understand that, to some extent, VIX has a mind of its own and moves independently of SPX. When VIX is low it can stay low for an extended period of time (2017). When VIX is high it doesn't mean it has to mean...

This is what I'm talking about when I say that the linear model cannot capture non-linearities. On Oct 11 the VIX hit a high of around 29. On Oct 23, SPX broke below the Oct 11 low but VIX peaked at around 25. I agree. The model I'm looking for would be useful for hedging.

I'm looking for a model that computes the expected VIX based on SPX price moves. For instance, SPX is currently at around 2650, and VIX is at 24. If SPX jumps to 2600, at what level would the VIX be? I imagine that the comprehensive approach would be to model the changes in implied vols at...

This tiny hedge fund made 8600% buying SVXY deep OTM puts (these were much cheaper than VIX calls on a relative basis). It's unlikely that a similar event will occur again with SVXY, since it's now been deleveraged, so I don't think it can be replicated.

The simple fact that his fund has managed to survive 10 years running a "crisis alpha" strategy in a bull market indicates they're doing something right. Taleb's own fund closed within 5 years.

Surprised no one has pointed out that long 100 shares SPY + 1 LEAP put is synthetically equivalent to buying 1 LEAP call at the same strike. You can free up a ton of capital by just buying the call. Maybe sell some short term OTM calls to reduce carry.

The probability theory is really just for getting it published in a fancy journal. You can get by without needing any of it. It's usually sufficient to read just the "empirical evidence" section.

I have no idea of their returns. Just found the report interesting.

There are some funds, like Artemis capital, that maintain a net long vol exposure with zero/positive carry in low vol environments. This report might be helpful: http://www.artemiscm.com/s/Artemis_Volatility-and-the-Alchemy-of-Risk_2017-bp5g.pdf

It's on page 126 of the book. As an example, consider ADBE, which has earnings on Sep 18. The implied vols of all expirations from Sep 21 to Nov 16 (including weeklies) are 0.413,0.37,0.343,0.328,0.332,0.295,0.31. I'm using aggregate IVs here, for convenience, but you can use ATM IVs if you...

The method I'm using only relies on this formula: IV^2 = 1/DTE * EV^2 + (1 - 1/DTE)*AV^2 We're assuming that the implied variance is the weighted sum of the ambient and event variances (got this from formula from Colin Bennett's book). Given several implied vols, we're basically "inverting"...

Since we can't actually predict what the post-jump implied vol will be, wouldn't our best estimate be the current ambient vol i.e. the portion of the IV not attributable to the event?

I've been looking for a good solution to this problem myself. The approach I use is similar to the "term structure" method you've mentioned, but looks at the first few expirations past the earnings date, as opposed to just 2 expirations. This is just so we can use more data for estimation. I...

I don't trade VIX futures (yet), so I have no assumptions on what a normal curve looks like. Just wanted to get some insight on how these trades are structured.