From Vix to VStoxx: decoupling volatility

Flows into volatility-based structured products and exchange-traded funds have been greatest in the US, though even European investors have tended to use the Vix index to access volatility. But higher volatility in Europe, coupled with an increase in the liquidity of the VStoxx, is fuelling demand for a benchmark that more closely measures the volatility of European equities. By Magda Ali

Bertrand Delarue

The long-held belief that the Chicago Board Option Exchange's Volatility Index (Vix), which is the benchmark for US volatility, is an appropriate proxy for the volatility of European equities is under threat. Volatility levels in Europe rocketed to their highest level this year, with the VStoxx Index surging 7.5% to a 32-month high of 53.55 in September 2011 and the Vix closing 14.96 points below the gauge, marking the widest gap since October 2008. Traders are saying strategies that focus on