Examination on the Relationship between OVX and Crude Oil Price with Kalman Filter

Abstract

Chicago Board Option Exchange publishes the Crude Oil Volatility Index (OVX) in 2007, which is regarded as a new barometer to research the variance of oil future prices. This paper explores how OVX changes are influenced by crude oil price returns with time-varying coefficients achieved by Kalman filter. The results indicate a negative and asymmetric contemporaneous relationship between OVX changes and crude oil price returns.