How is volatility regimes commonly defined in the literature? What are metrics used to define high volatility regime?
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$\begingroup$ Which document(s)? In addition to level I think duration, or time spent, of being in a certain bandwidth should be incorporated in defining a regime. My impression though is that the conditions for being in a certain regime are not very rigorous and sometimes even quite arbitrary. I am not aware of a consensus on this. $\endgroup$– FridoCommented Oct 17 at 11:49
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1$\begingroup$ check in the 2nd page: spglobal.com/spdji/en/… $\endgroup$– SaneCommented Oct 18 at 7:23
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$\begingroup$ FWIW in the last 20 years (2004 to Sept 24, 2024) the vix has closed > 20 on 1666 days, has closed 12 to 20 on 3010 days, and has closed < 12 on 559 days. So the low vix category is perhaps a little too restrictive based on the last 20 years, the other 2 categories are reasonable. (OTOH there have been some periods of very low VIX if you go back further in time). $\endgroup$– nbbo2Commented Oct 18 at 13:58
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$\begingroup$ yes, agree, that's why i am trying to derive more reasonable estimates. $\endgroup$– SaneCommented Oct 18 at 14:49
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$\begingroup$ One approach might be 25% in the low category, 50% in the middle and 25% in the high, over the entire time that VIX has existed. $\endgroup$– nbbo2Commented Oct 23 at 14:04
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Academic and Industry References Whaley (2009) in his seminal paper on the VIX noted that the index's historical average was around 20, with significant market stress reflected when the VIX was above 30. He didn’t define exact "regimes" but suggested that the VIX above 20 signaled heightened market concern.
CBOE Documentation: The Chicago Board Options Exchange (CBOE) itself provides educational resources on the VIX, often using 20 as a threshold for higher market stress.
Practitioner Insights: A 2020 article by Goldman Sachs classifies a "low volatility" regime when the VIX is below 15 and "high" when the VIX is above 20.
Low Volatility: VIX ≤ 12 (calm, stable markets). Medium Volatility: 12 < VIX ≤ 20 (normal market fluctuation). High Volatility: VIX > 20 (stress, uncertainty, corrections).
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$\begingroup$ Thank you for this. Can you please add citations too? $\endgroup$– SaneCommented Oct 24 at 8:47