The Swedish Expected Volatility Index: Construction and Properties

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In this paper we construct an index, SVIX, measuring the expected 30 calendar day volatility on the Swedish stock market for the time period January 1993 to June 2006. SVIX is constructed from OMX index option prices using the same method as used by the Chicago Board Options Exchange (CBOE) in calculating the CBOE Volatility Index, VIX, and is independent of any option pricing model. The overall results from the examination of the properties of SVIX indicate that the index behaves largely as existing foreign volatility indices. We find that SVIX has a non-normal distribution, exhibits both volatility clustering and mean reversion, has a negative, albeit not asymmetric, relationship with the returns of the underlying OMX index and is affected by the expected volatility both on the US and Eurozone markets. Most interestingly, SVIX displays good forecasting ability and although we find it to provide a slightly biased forecast of future realized volatil...