The VIX starts smiling

The VIX implied volatilities used to look like a logarithmic function of the strikes. I don’t look at them often, but today, I noticed that the VIX had the start of a smile shape.

1m VIX implied volatilities on March 21, 2017 with strictly positive volume.

Very few strikes trades below the VIX future level (12.9). All of this is likely because the VIX is unusually low: not many people are looking to trade it much lower.

Update March 22: Actually the smile in VIX is not particularly new, it is visible in Jim Gatheral 2013 presentation Joint modeling of SPX and VIX for the short maturities. Interestingly, the issue with SVI is also visible in those slides in the shortest maturity.

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