On 3 September 2007 Euronext will launch a total of three new indices, further expanding its index portfolio: AEX® Volatility Index, BEL 20® Volatility Index and CAC 40® Volatility Index. These indices capture implied volatility embedded in option prices1.
With the launch of the volatility indices, Euronext aims to contribute to the awareness of one of the main determinants of option pricing, implied volatility, and to stimulate the trading of standard index options and Variance futures available from Liffe.
Market participants believe that the volatility indices work like a barometer. A high value translates into a greater degree of underlying index turbulence, while a low value of the index is consistent with greater stability.
AEX® Volatility, BEL 20® Volatility and CAC 40® Volatility indices follow the current VIX® methodology, a sentiment indicator for the US market based on the S&P500 index option prices listed on CBOE. This methodology is currently used as the basis for many such indices and has become a standard throughout the world.
Mark Adema, General Manager at Euronext Indices B.V. says: “We are very pleased to announce the launch of our own suite of volatility indices. Volatility has become a much-discussed topic in financial markets, and the arrival of these indices will be a welcome tool for market participants to improve their perception of the market.”
Harold Duineveld, Head of Product Management Equity Derivatives at Liffe says: “Volatility is one of the most important aspects of options’ pricing. By providing these volatility indices we want to create more visibility and awareness around the concept of equity market volatility.”
1 The implied volatility of an option is the expected volatility of the underlying asset anticipated by the market as deduced from the price of the option on the basis of a mathematical model.
Additional information:
The new indices will have the following naming characteristics:
ISIN |
Mnemonic |
Long Name |
Underlying Index |
QS0011052147 |
VAEX |
AEX® Volatility Index |
AEX-index® |
QS0011052154 |
VBEL |
BEL 20® Volatility Index |
BEL 20® |
QS0011052139 |
VCAC |
CAC 40® Volatility Index |
CAC 40® |
The volatility indices, on a real time basis, capture implied volatility embedded in prices of out of the money index call and put options available on Liffe. They are calculated in a transparent manner, using only one external parameter, the risk free interest rate. The indices are quoted in terms of percentage points and translate the expected movement in the underlying index over the next 30-day period, on an annualized basis.
You will be able to find and download the historical data of these indices, as well as a technical specification of the index methodology, along with a list of frequently asked questions on: http://volatility.euronext.com/
Additional information on indices and derivatives products can be found on:
www.euronext.com
www.euronext.com/indexderivatives
www.euronext.com/variancefutures