Municipal Bond VIX
The CMF Muni VIX is based on the implied volatility of call and put options on municipal bond exchange-traded funds (ETFs). Each day we observe the average implied volatility – based on the standard Black-Scholes model – across all 30 day puts and calls for each of the eleven muni ETFs with consistent daily put/call trading volume (tickers: MUB, MUNI, TFI, JMST, HYD, PZA, BAB, CMF, ITM, HYMB, VTE). We then compute a daily average implied volatility across all eleven ETFs weighted by that day’s total put/call volume and open interest. The index begins on October 1, 2018, the first date that we observe consistent put/call trading volume across most of the eleven ETFs.
Daily index values are weighted averages that do not lend themselves to a direct interpretation. Instead, they are best interpreted in historical context. It follows that a CMF Muni VIX greater than 0.15 suggests comparatively high near-term muni market volatility. More specifically, 0.15 suggests the muni market will be more volatile over the next 30 days than two-thirds of the 30-day periods that preceded it. Additional analysis suggests that the CMF Muni VIX strongly correlates with future realized muni market volatility.
To share questions or feedback on the CMF Muni VIX, contact Justin Marlowe (jmarlowe@uchicago.edu).