It was bootstrapping that made me start off on my statistics journey years ago. I have very fond memories of the days when I could understand simple things in statistics without resorting to complicating looking formulae. A few lines of code were all that was needed. Slowly I became more curious about many things in statistics and that’s how my love affair with stats began. There are two bibles that any newbie to bootstrap should go over; one by Efron & Tibshirani and the other by Davison & Hinkley.

[youtube https://www.youtube.com/watch?v=h4Y26D3LmrE?rel=0]

The paper titled, “The imprecision volatility indexes”, analyzes VVIX, the vega weighted VIX, an estimate for the 30 day expected volatility. Market participants have always wanted some kind of quantitative measure for the volatility. CBOE introduced VIX based on the Black Scholes volatility of ATM options and later changed it to a method that is based on observed option prices. The latter method in the finance literature goes by the name, “model free method”, because it uses a replicating portfolio argument of pricing a variance swap.

In every elementary statistics textbook on inference you will find the following question How to draw an inference on a correlation estimate between two variables ? An inverse hyperbolic tangent transformation is applied to the correlation coefficient, which then is shown to be distributed as a normal random variable.This transformed variable is then used to compute confidence intervals on the original scale. If one is curious, a natural follow up question would be,

The paper titled, “Extracting Model-Free Volatility from Option Prices: An Examination of the VIX Index”, is a very interesting paper that talks about the problems in the VIX index computation that is currently being used at CBOE. Other stock exchanges throughout the world are also following a similar method for disseminating VIX, called the fear index. One of the most interesting conclusions of the paper is this : VIX underestimates the true volatility in times of panic, i.