A study on the relation between VIX, S&P500 and the CDX-index

Abstract

In this thesis we investigate the relationship between the VIX-index, CDX NA IG and S&P500. Our goal is to study how well the market volatility (traded in VIX) can be explained by stock prices(S&P500) and credit indices (CDX NA IG)

The VIX-index is a measure of implied volatility in the S&P500 and is often referred to as a fear index. CDX.NA.IG is a credit default swap-index consisting of 125 North American investment grade companies and the S&P500 is a stock index consisting of the 500 largest companies in USA.

We use ordinary least square (OLS) regression to study the relationship between our variables and find that the VIX, CDX NA IG and S&P500 have a high correlation.