Computing Volatility Indexes With VIX Futures

Updated: Mar 8th, 2017 | Vance Harwood | @6_Figure_Invest

Using the CBOE’s VIX futures historic data and interpolations / extrapolations for contracts that were not traded I developed a continuous time series for 7 months of VIX futures settlement values.   I then used that data, plus treasury bill data to compute the indexes that underly the popular long and short volatility ETPs in the USA.

This spreadsheet includes the formulas to properly format the VIX futures data and to generate the total returns (TR) and excess returns (ER) volatility indexes such as SPVXSTR, SPVXSP, and SPVXMP.   The spreadsheet also includes the required futures and treasury data up through February 2017.  The spreadsheet is setup such that the user can bring the spreadsheet up to the present date in a straightforward and well documented process.   If you purchase this product I will also send you a spreadsheet via email that takes the various volatility indexes and computes many of the popular volatility exchange traded fund products (e.g., VXX, UVXY, TVIX, XIV, SVXY,ZIV) starting in March 2004.

If you purchase the spreadsheet  you will be eventually be directed to paypal where you can pay via your paypal account or a credit card. When you successfully complete the paypal portion you will be shown a ”Return to Six Figure Investing” link.    Click on this link to reach the page where can download the spreadsheet.  Please email me at [email protected] if you have problems, questions, or requests.

VIX Future and volatility index computation
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Your credit card statement will show the following description on this transaction: "PAYPAL*VH2SOLUTION". After you have paid look for a "Return to Six Figure Investing" link. This will take you to a page where you can download the product.

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Wednesday, March 8th, 2017 | Vance Harwood
  • Jony

    The article linked below asserts that XIV and SVXY would not have survived the 2010 flash crash nor the 2011 European crisis due to intra-day spikes in the VIX futures and the tripping of a termination event:

    I was curious if you agree with that based on your simulated data. Of course, if someone is using the futures directly instead of a simulated instrument they avoid that issue but will need to have lots of available margin.

  • Hi Jony,
    Reviewing my simulations it’s clear that XIV would not have terminated in the 18-Aug-2011 event–I show XIV at its worst was “only” down intraday by 22%. The writers of the post you mentioned probably ignored / weren’t aware that both the front and next to front futures need to be in the calculation of XIV’s value. My spreadsheet results are shown here:

    The 6-May-2010 Flash Crash was a much closer thing. My simulation shows a maximum drawdown of -79.3% of the previous close (termination is a possibility if it goes down -80% or more). However my simulation makes some assumptions that could change this number, for example I assume that both sets of futures involved have their low value at the same time. Another significant factor is how the intraday indicative value used to determine termination is calculated. I suspect it uses the midpoint between the bid/ask for its calculation, if so then the drawdown would have been significantly less. In high stress situations like this one the spreads get quite wide. My simulation shows the following data for that day:
    Reading the prospectus several other factors emerge:
    1. The issuer is not obligated to terminate, it is at their discretion
    2. If terminated the liquation is at the closing indicative value, not the value that triggered the event (the close could be higher or lower than the triggering indicative value)
    3. The closing indicative value will not be less than zero

    These points imply that even if the termination event occurred (which I judge as unlikely given the transient nature of the crash), the issuer would wait until end of day to close out their positions. Otherwise If they sold at the termination point and the market recovers then they would have to cough up a lot of money.
    Incorporating this, even if XIV did terminate that day the holders would not have been wiped out, but rather would have experienced a -19% loss (because the market rebounded strongly).

    Reviewing the SVXY prospectus there is no 80% termination trigger. The fund can be terminated at the issuer’s discretion, but no criteria are specified. Given that it is unlikely that SVXY would have terminated on 6-May-2010.