New Study Issued By Fund Evaluation Group On The CBOE DJIA BuyWrite Index (BXD), CBOE DJIA Volatility Index (VXD), And Impact On Risk-Adjusted Returns

The Chicago Board Options Exchange (CBOE) announced today the results of a new study done by Fund Evaluation Group (FEG), a leading investment advisory firm. The study, which was commissioned by CBOE, is entitled "Evaluation of BuyWrite and Volatility Indexes - Using the CBOE DJIA BuyWrite Index (BXD) and the CBOE DJIA Volatility Index (VXD) for Asset Allocation and Diversification Purposes."The paper studied the 109-month period from October 1997 to November 2006, and compared the performance of the BXD Index to several equity and fixed income benchmarks, and studied the impact of allocating a portion of a portfolio to the VXD Index.

Performance of the CBOE DJIA BuyWrite Index (BXD)
The FEG study presented several findings on the 9-year performance of the BXD Index, including:

- Diversification and Reduced Volatility.The volatility of the BXD was 25% less than that of the DJIA and 46% lower than the Russell 2000. The study found that if an investor had allocated 25% of an otherwise all-stock portfolio to the BXD, the portfolio volatility would have declined by about 9%.

- Income Generation.Selling index options 12 times per year can produce significant income. Over the 109-month period studied, the average monthly options premium received was 1.84%, or an annualized rate of 24.46%.

- Improved Risk-Adjusted Returns. Incorporating a 10% allocation to the BXD could have improved the risk-adjusted returns (as measured by the Sharpe Ratio) of all four comparative portfolios studied (i.e., all stocks, all fixed income, aggressive and conservative portfolios).


Performance of the CBOE DJIA Volatility Index (VXD)
The study also presented several findings on the 9-year performance of the VXD Index:

- Volatility Index Can Reduce Portfolio Volatility. Including a small (10%) allocation to the CBOE DJIA Volatility Index (VXD) could have reduced the volatility of an all-stock portfolio by about 26%, without materially affecting returns.

- Low Correlation and Diversification.The VXD and the DJIA were inversely correlated (-0.62) over the course of this study. The study showed that VXD increased more during market declines (VXD reacted more to stock market declines than to stock market advances), indicating that VXD has potential as a diversification tool.

- Impact on Risk-Adjusted Returns. The inclusion of a small (5%) allocation to the VXD Index boosted risk-adjusted returns for a stock-oriented portfolio, and lowered the risk-adjusted returns for a fixed-income-oriented portfolio.


Michael J. Oyster, FEG lead study consultant, commented in the study: "Volatility as a tool for asset allocation is a concept worth considering because of the potential it has to improve the risk-adjusted returns of diversified portfolios."

Gaining exposure to volatility can be achieved through trading VXD futures contracts listed on the CBOE Futures Exchange (CFE).

The complete FEG study can be found at http://www.cboe.com/BXD.