Creator of Wall Street’s ‘Fear Index’ joins ‘Crypto Volatility Index’ as advisor 🚨 This article is 4 years old...
Creator of Wall Street’s ‘Fear Index’ joins ‘Crypto Volatility Index’ as advisor
The 'Fear Index' is a popular, heavily cited tool in financial circles. And its creator wants to support similar products in the crypto space.
2 min read
Updated: May. 13, 2021 at 10:33 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
The Crypto Volatility Index (CVI) project, an open-source decentralized finance protocol backed by blockchain protocol COTI, is adding professor Dan Galai, the co-creator of the VIX, into its board of advisors, as per a release.
Galai will assist the CVI team in establishing the protocol as the market standard for a crypto analog of the VIX.
What’s the crypto volatility index?
The CBOE Market Volatility Index, commonly known by its ticker VIX and often referred to as the “Fear Index”, is a financial instrument tracking the real-time implied volatility of 30-day S&P 500 options.
In comparison, the CVI tracks the implied volatility in the next thirty days of major Bitcoin and Ether options markets. Implied volatility is a component of an option’s price representing the market’s expectation of future price movements for the underlying asset. Particularly high implied volatility suggests that the market believes a downturn is imminent, though the prediction does not always match reality.
It, in addition to offering an invaluable indicator for assessing trading and investment strategies, can also be traded directly, offering an incredibly versatile tool for cryptocurrency traders. The volatility index can be used to hedge other crypto positions against downturns, or facilitate creative trading strategies based on market sentiment.
The ‘Fear Index’ initially designed by Galai and Menachem Brenner in a series of papers published after 1989, where they envisioned the creation of a series of volatility indices for different asset classes, including stock markets but also interest rates and foreign exchange rates.
The concept was later implemented by the Chicago Board Options Exchange in 1993.
Galai’s journey to crypto
“As advisor to the Crypto Volatility Index project, I’m looking forward to helping design advanced risk management tools for investors in this new, and often wild asset class,” said Prof. Galai in a statement.
He added, “I am confident the CVI team has the knowledge and capability to put theory into practice and build a truly useful product in the cryptocurrency space.”
Galai is Professor Emeritus of Finance and Business Administration at the Hebrew University in Jerusalem. He is a world-renowned expert in risk management and financial derivatives, having obtained a Ph.D. in Business Administration at the University of Chicago.
In his long career, he served as a consultant to the Chicago Board Options Exchange and American Stock Exchange. His academic career included Visiting Professor of Finance positions at INSEAD, HEC Lausanne, UCLA, UC Berkeley, and others.
