Controversy surrounding the VIX benchmark — this expert saw it coming

There are a lot of eyes on the VIX benchmark these days as regulators explore potential flaws in the Cboe Global Markets product. Focus is on the monthly process through which the price of VIX futures contracts is calculated.

According to a recent article on Bloomberg, “That monthly auction has been the focus of intense scrutiny this year, spurred by wild price swings and a 2017 research paper alleging the process is rigged. The stakes are big. Billions of dollars of derivatives contracts and exchange-traded products are tied to the index.”

But should this be a surprise to anyone? As the article points out, a Texas McCombs professor has been looking into the VIP benchmark for some time now:

“John Griffin, the University of Texas professor whose 2017 paper written with a grad student caught traders’ attention, believes someone is artificially suppressing the price of S&P 500 contracts, then profiting when the VIX settlement price comes in much higher. A more than $200 million distortion in the market was seen during the April 18 auction, he argues. ‘Since the public release and publication of our academic paper last year, the settlement deviations have substantially increased,’ he wrote in this week’s column. [Griffin is a regular columnist for Bloomberg.] ‘We are concerned that market participants may be reading our paper as a how-to-manipulate manual.’”

This is a complex issue with literally billions of dollars at stake. And if you need to know more, that’s where our experts can help.

Griffin is an educator and researcher in the structured finance field with respect to mortgage-backed securities and collateralized debt obligations. His expertise also includes international finance, institutional investment, and forensic finance, and his recent research focuses on understanding the role that conflicts of interest and misreporting by credit rating agencies and investment banks played in the financial crisis.Griffin is available to speak with media. Simply click on his icon to arrange an interview today.

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