The Greatest Collapse In The History Of The VIX Index

Submitted by Christopher Cole via Artemis Capital Management,
The extraordinary market intervention by China in response to their declining market, coupled with further ‘kick the can down the road’ policies by the EU regarding Greece, resulted in the greatest collapse in the history of the VIX index (which is still ongoing as I write). Over the past five days and counting the VIX has fallen -40% from 19.97 to 12.11. To gain perspective on moves in volatility Artemis ranks consecutive drawups and drawdowns (peak-to-trough or trough-to-peak % moves by day) in the VIX index and models them as a power law distribution. While the concept may be obscure to grasp at first the ramifications of the analysis are enlightening.
What is a power-law distribution? The distributions of a wide variety of physical, biological, and human phenomena follow what is known as a power-law distribution. Examples include earthquakes, deaths in war and terrorism, populations of cities, solar flares, word frequencies in language, movie box office receipts… and financial asset price movements up and down over multiple days. Supernormal Power-Law Violations: When you rank events from the above natural and human phenomena the vast majority of observations follow the power-law distribution perfectly- however the violations of the function are the most interesting. Power-law violations are true black swans or supernormal observations because their results contain a degree of reflexivity that outside the boundary of what would be expected from an exponential growth function. Examples of supernormal violations in power laws across other phenomena include death counts in WWII ranked among all wars, box office receipts of the movie Titanic, the 9.2 Magnitude 1960 Chilean Earthquake, the population of Tokyo, the 1987 Black Monday Crash, and the 9/11 terror attack in NYC.

This post was published at Zero Hedge on 07/18/2015 –.