The chart below graphically represents the calculation for the VIX® and the legacy VIX (ticker VIXMO) which was used from September 22, 2003 through October 5th, 2014. My apologies for the small size / non-expandable format, but this was the best near real time (20 minute delayed) solution I could figure out using Google Sheets. The actual VIX is located on the black dotted line in the left center of the graph. Click here for a larger snapshot for 12-Nov-2014. The VIX now uses an interpolation between two VIX style calculations (VIN and VIF) on SPX options series that are a week apart—bracketing the 30 day target horizon of the VIX. The legacy calculation uses SPX monthly options (now published as VINMO and VIFMO) which requires significantly longer interpolation/extrapolation periods.
Since its inception on October 6th, 2014 the new VIX has often differed significantly from the older calculation, often running 5% or more lower than the legacy number. This is disconcerting and I initially wondered if the reduced volume/open interest of the SPX weekly options used in the new calculation or some other factor was distorting things, but as I look at the data I’m becoming comfortable with the new calculation as a significant improvement in the accuracy of the index.
There are two somewhat parallel markets associated with general USA market volatility: the S&P 500 (SPX) options market and the VIX Futures market. SPX option prices are used to calculate the CBOE’s family of volatility indexes, with the VIX® being the flagship. VIX futures are priced directly in expected volatility for contracts expiring up to 9 months out. The nearest VIX Future synchronizes with the VIX once a month—on its expiration date.
- VIX Futures’ timescape and historical data: VIX Central
- VIX style indexes and term structure for SPX option expirations up to 2½ years out: CBOE
- The Volatility Watcher’s Toolkit
- Trading VIX Options
- Near Real Time Graphical VIX Term Structure
- Volatility Related Indexes and Tickers
- Calculating the VIX—The Easy Part
- How Does the CBOE’s VIX® Index Work?
- Top 11 Questions About the CBOE’s VIX
Wednesday, April 8th, 2015 | Vance Harwood