VIX

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Description:
VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. The VIX Index was introduced by Prof. Robert Whaley in 1993 while he was at Duke University.

Specifications

The VIX is calculated and disseminated in real-time by the Chicago Board Options Exchange. It is a weighted blend of prices for a range of options on the S&P 500 index. On March 26, 2004, the first-ever trading in futures on the VIX Index began on CBOE Futures Exchange (CFE).As of February 24, 2006, it became possible to trade VIX options contracts. A few Exchange Traded Funds seek to track its performance. The formula uses a kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expirations. The goal is to estimate the implied volatility of the S&P 500 index over the next 30 days.<BR>

The VIX is the square root of the par variance swap rate for a 30 day term initiated today. Note that the VIX is the volatility of a variance swap and not that of a volatility swap (volatility being the square root of variance). A variance swap can be perfectly statically replicated through vanilla puts and calls whereas a...
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