VσLATILITY – An Instrument of Truth
Artemis Capital, a hedge fund we really admire, leveraged financial fodder for aesthetic output. The result: pretty pixelated turquoise waves teeming with humanity, courting neoclassical economics, coaxing postmodern finance and revealing the contours of chaos.
Stock price gyrations and market jitters have been an obsession of speculators and investors for generations. On a more abstract level, mathematicians visualize modern markets as an extension of the same fractal beauty found in nature. The idea and optics are awesome: equity markets may take the shape of tempestuous seas comprised of the underlying constituent parts that define our human condition: pleasure, pain, greed, fear and expectations of the future computed in the present. Oh, and a whole lot of randomness.
Fusing the world of high finance and high art, Artemis Capital, a hedge fund that VIVISXN deeply admires and on the bleeding-edge of quant finance, generated a super-cool visual schematic of ‘volatility’ over the past twenty years. Titled, ‘Volatility at World’s End: Two Decades of Movement in Markets’, this brain-bending depiction of real stock market oscillations uses oodles of time-series data juxtaposed against a nerve-jangling news cycle and stochastic ‘jump diffusions.’ It is a killer composite of gyroscopic step functions and dope differential equations seen from 3D/quasi-Cubist vantage points. The optics crackle with negative and positive convexity – look it up here.
Taken from S&P 500 index option stats, these visuals replicate/simulate the implied volatility wave (or variance swap curve) extending to an expiration of one year. The front of the ‘vol wave’ contains the exact same data used to calculate the CBOE VIX index. The movement of this wave corresponds to traders’ constantly morphing expectations as new information gets metabolized, transmuted and acted upon in a frenetic, causally reciprocal feedback loop.
As the wave moves through spacetime, the expected (or implied) volatility surface transforms into a realized volatility surface derived from historical S&P 500 index movement. The transition represents what the pros call ‘volatility arbitrage.’ The colorways in the vol waves show the volatility-of-volatility, or internal movement of the wave.
Essentially volatility is an instrument of truth. Regardless of how it is measured volatility reflects the difference between the world as we imagine it to be and the world that actually exists. Watch the beautiful vid below (scroll all the way down) in all its centrifugal forces that let you see the order and angst in chaos, and the chaos in order and angst. Cool!
Images Artemis Capital + Managed Entropy Capital Advisors – MECA + NANEX
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