Volatility Term Structure
The shape of implied volatility across option maturities — flat in calm regimes, inverted (front-loaded) in stress.
Definition
In normal regimes, IV term structure slopes upward — longer-dated options have higher IV because they cover more potential events. In stress, the curve inverts: front-month IV exceeds back-month as immediate vol exceeds expected long-run vol.
VIX vs VIX3M is the most-watched proxy. VIX/VIX3M > 1 signals immediate stress; < 0.9 signals calm.
Public research record
Research framework · page evidenceCompleted application: Volatility Term Structure
Term structure tells you when stress is acute vs structural. It's a key input for vol-targeting strategies and risk-parity rebalancing.
| Type | Claim | Scope |
|---|---|---|
| Release fact | The shape of implied volatility across option maturities — flat in calm regimes, inverted (front-loaded) in stress. | Options |
| Release fact | August 2024 carry unwind: VIX/VIX3M briefly hit 1.7 — extreme inversion. Reversion to <1.0 within two weeks coincided with the equity recovery. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
Why it matters
Term structure tells you when stress is acute vs structural. It's a key input for vol-targeting strategies and risk-parity rebalancing.
Worked example
August 2024 carry unwind: VIX/VIX3M briefly hit 1.7 — extreme inversion. Reversion to <1.0 within two weeks coincided with the equity recovery.