The CBOE Volatility Index - VIX

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1 Whte Paper he CBOE Volatlty Index - VIX he powerful and flexble tradng and rsk managment tool from the Chcago Board Optons Exchange

2 HE CBOE VOLAILIY INDEX - VIX In 993, the Chcago Board Optons Exchange (CBOE ) ntroduced the CBOE Volatlty Index (VIX Index), whch was orgnally desgned to measure the market s expectaton of 30-day volatlty mpled by at-the-money S&P 00 Index (OEX Index) opton prces. he VIX Index soon became the premer benchmark for U.S. stock market volatlty. It s regularly featured n the Wall Street Journal, Barron s and other leadng fnancal publcatons, as well as busness news shows on CNBC, Bloomberg V and CNN/Money, where VIX s often referred to as the fear ndex. en years later n 003, CBOE together wth Goldman Sachs, updated the VIX to reflect a new way to measure expected volatlty, one that contnues to be wdely used by fnancal theorsts, rsk managers and volatlty traders alke. he new VIX s based on the S&P 500 Index (SPX SM ), the core ndex for U.S. equtes, and estmates expected volatlty by averagng the weghted prces of SPX puts and calls over a wde range of strke prces. By supplyng a scrpt for replcatng volatlty exposure wth a portfolo of SPX optons, ths new methodology transformed VIX from an abstract concept nto a practcal standard for tradng and hedgng volatlty. In 04, CBOE enhanced the VIX Index to nclude seres of SPX Weeklys SM. Frst ntroduced by CBOE n 005, weekly optons are now avalable on hundreds of ndexes, equtes, EFs and ENs and have become a very popular and actvely-traded rsk management tool. oday, SPX Weeklys account for one-thrd of all SPX optons traded, and average over a quarter of a mllon contracts traded per day. he ncluson of SPX Weeklys allows the VIX Index to be calculated wth S&P 500 Index opton seres that most precsely match the 30-day target tmeframe for expected volatlty that the VIX Index s ntended to represent. Usng SPX optons wth more than 3 days and less than 37 days to expraton ensures that the VIX Index wll always reflect an nterpolaton of two ponts along the S&P 500 volatlty term structure. Volatlty as a tradable asset: VIX Futures & Optons On March 4, 004, CBOE ntroduced the frst exchange-traded VIX futures contract on ts new, all-electronc CBOE Futures Exchange SM (CFE ). wo years later n February 006, CBOE launched VIX optons, the most successful new product n CBOE hstory. In just ten years snce the launch, combned tradng actvty n VIX optons and futures has grown to over 800,000 contracts per day. he negatve correlaton of volatlty to stock market returns s well documented and suggests a dversfcaton beneft to ncludng volatlty n an nvestment portfolo. VIX futures and optons are desgned to delver pure volatlty exposure n a sngle, effcent package. CBOE/CFE provdes a contnuous, lqud and transparent market for VIX products that are avalable to all nvestors from the smallest retal trader to the largest nsttutonal money managers and hedge funds. Beyond VIX In addton to the VIX Index, CBOE calculates several other volatlty ndexes ncludng the CBOE Short- erm Volatlty Index (VXS SM ) - whch reflects 9-day expected volatlty of the S&P 500 Index, as well as the CBOE Nasdaq-00 Volatlty Index (VXN SM ), CBOE DJIA Volatlty Index (VXD SM ), CBOE Russell 000 Volatlty Index (RVX SM ) and CBOE S&P Month Volatlty Index (VXV SM ) and the CBOE S&P Month Volatlty Index (VXM SM ). Currently, VXS, VXN and RVX futures are lsted on CFE; VXS and RVX optons trade on CBOE. In 008, CBOE poneered the use of the VIX methodology to estmate expected volatlty of certan commodtes and foregn currences. he CBOE Crude Ol EF Volatlty Index (OVX SM ), CBOE Gold EF Volatlty Index (GVZ SM ) and CBOE EuroCurrency EF Volatlty Index (EVZ SM ) use exchange-traded fund optons based on the Unted States Ol Fund, LP (USO), SPDR Gold Shares (GLD) and CurrencyShares Euro rust (FXE), respectvely. YD through August 04.

3 HE CBOE VOLAILIY INDEX - VIX 3 CBOE has snce ntroduced several new volatlty ndexes, ncludng volatlty ndexes based on ndvdual stocks: CBOE U.S. Energy Sector EF Volatlty Index (VXXLE SM ) CBOE Emergng Markets EF Volatlty Index (VXEEM SM ) CBOE EFA EF Volatlty Index (VXEFA SM ) CBOE Gold Mners EF Volatlty Index (VXGDX SM ) CBOE Slver EF Volatlty Index (VXSLV SM ) CBOE Brazl EF Volatlty Index (VXEWZ SM ) CBOE Chna EF Volatlty Index (VXFXI SM ) CBOE Equty VIX on Apple (VXAPL SM ) CBOE Equty VIX on Amazon (VXAZN SM ) CBOE Equty VIX on Goldman Sachs (VXGS SM ) CBOE Equty VIX on Google (VXGOG SM ) CBOE Equty VIX on IBM (VXIBM SM ) As of August 04, securty futures on OVX, GVZ, VXEEM and VXEWZ are lsted at CFE. CBOE lsts optons on OVX, GVZ, VXEEM and VXEWZ as well. Hstorcal Prces: VIX and Other Volatlty Indexes Perhaps one of the most valuable features of the VIX Index s the exstence of more than 0 years of hstorcal prces. hs extensve data set provdes nvestors wth a useful perspectve of how opton prces have behaved n response to a varety of market condtons. Prce hstory for the orgnal CBOE Volatlty Index (VXO) based on OEX optons s avalable from 986 to the present. CBOE has created a smlar hstorcal record for the new VIX Index datng back to 990 so that nvestors can compare the new VIX Index wth VXO, whch reflects nformaton about the volatlty skew or smle. Hstorcal prces for VIX, VXO and CBOE s other volatlty ndexes may be found on the CBOE webste at under CBOE Volatlty Indexes.

4 HE CBOE VOLAILIY INDEX - VIX 4 he VIX Calculaton: Step-by-Step Stock ndexes, such as the S&P 500, are calculated usng the prces of ther component stocks. Each ndex employs rules that govern the selecton of component securtes and a formula to calculate ndex values. he VIX Index s a volatlty ndex comprsed of optons rather than stocks, wth the prce of each opton reflectng the market s expectaton of future volatlty. Lke conventonal ndexes, the VIX calculaton employs rules for selectng component optons and a formula to calculate ndex values. he generalzed formula used n the VIX calculaton s: σ = K K e Q K R ( ) K 0 F () WHERE... σ s F K o K VIX VIX = σ me to expraton Forward ndex level desred from ndex opton prces Frst strke below the forward ndex level, F Strke prce of the th out-of-the-money opton; a call f K >K o ; and a put f K <K o ; both put and call f K =K o. K Interval between strke prces - half the dfference between the strke on ether sde of K : K = K + K (Note: K for the lowest strke s smply the dfference between the lowest strke and the next hgher strke. Lkewse, K for the hghest strke s the dfference between the hghest strke and the next lower strke.) R Q(K ) Rsk-free nterest rate to expraton he mdpont of the bd-ask spread for each opton wth strke K. Please see More than you ever wanted to know about volatlty swaps by Kresmr Demeterf, Emanuel Derman, Mchael Kamal and Joseph Zou, Goldman Sachs Quanttatve Strateges Research Notes, March 999.

5 HE CBOE VOLAILIY INDEX - VIX 5 GEING SARED he VIX calculaton measures 30-day expected volatlty of the S&P 500 Index. he components of the VIX calculaton are near- and next-term put and call optons wth more than 3 days and less than 37 days to expraton. hese nclude SPX optons wth standard 3 rd Frday expraton dates and weekly SPX optons that expre every Frday, except the 3 rd Frday of each month. Once each week, the SPX optons used to calculate VIX roll to new contract maturtes. For example, on the second uesday n October, the VIX ndex would be calculated usng SPX optons exprng 4 days later (.e., near-term ) and 3 days later (.e., next-term ). On the followng day, the SPX optons that expre n 30 calendar days would become the near-term optons and SPX optons that expre n 37 calendar days would be the next-term optons. In ths hypothetcal example, the near-term optons are standard SPX optons wth 5 days to expraton, the next-term optons are P.M.-settled SPX Weeklys wth 3 days to expraton; and the calculaton reflects prces observed at 9:46 a.m. Chcago tme. For the purpose of calculatng tme to expraton, standard SPX optons are deemed to expre at the open of tradng on SPX settlement day - the thrd Frday of the month, and weekly SPX optons are deemed to expre at the close of tradng (.e., 3:00 p.m. C). he VIX calculaton measures tme to expraton,, n calendar days and dvdes each day nto mnutes n order to replcate the precson that s commonly used by professonal opton and volatlty traders. he tme to expraton s gven by the followng expresson: WHERE... = {M Current day + M Settlement day + M Other days } / Mnutes n a year M Current Day = mnutes remanng untl mdnght of the current day M Settlement day = mnutes from mdnght untl 8:30 a.m. for standard SPX expratons; or mnutes from mdnght untl 3:00 p.m. for weekly SPX expratons M Other days = total mnutes n the days between current day and expraton day Usng 9:46 a.m. as the tme of the calculaton, for the near-term and next-term optons, and, respectvely, s: = { ,560} / 55,600 = = { ,640} / 55,600 = he rsk-free nterest rates, R and R, are the bond-equvalent yelds of the U.S. -bll maturng closest to the expraton dates of relevant SPX optons. As such, the VIX calculaton may use dfferent rskfree nterest rates for near- and next-term optons. In ths example, assume that R = % for the near term optons and that R = 0.086% for the next term optons. Note n ths example, uses a value of 900 for M Settlement day, whch reflects the 3:00 p.m. expraton tme of the next-term SPX Weeklys optons. Snce many of the nterm calculatons are repettve, only representatve samples appear below. he complete set of SPX opton data and calculatons may be found n Appendx. echncally, the expraton date for standard SPX optons s the Saturday followng the 3 rd Frday of the expraton month. In ths example, however, expraton s deemed to take place at the determnaton of the exercse settlement value of the SPX, whch s based on the openng prces of SPX component securtes.

6 HE CBOE VOLAILIY INDEX - VIX 6 SEP : Select the optons to be used n the VIX calculaton he selected optons are out-of-the-money SPX calls and out-of-the-money SPX puts centered around an at-the-money strke prce, K 0. Only SPX optons quoted wth non-zero bd prces are used n the VIX calculaton. One mportant note: as volatlty rses and falls, the strke prce range of optons wth non-zero bds tends to expand and contract. As a result, the number of optons used n the VIX calculaton may vary from month-to-month, day-to-day and possbly, even mnute-to-mnute. For each contract month: Determne the forward SPX level, F, by dentfyng the strke prce at whch the absolute dfference between the call and put prces s smallest. he call and put prces n the followng table reflect the average of each opton s bd / ask quotaton. As shown below, the dfference between the call and put prces s smallest at the 965 strke for the near- and the 960 strke for the next-term optons. Near erm Optons Strke Strke Call Put Dfference Call Put Dfference Prce Prce Usng the 965 call and put n the near-term, and the 960 call and put n the next-term contract appled to the formula: F = Strke Prce + e R x (Call Prce - Put Prce) Next erm Optons the forward ndex prces, F and F, for the near- and next-term optons, respectvely, are: F = e ( x ) x ( ) = F = e ( x ) x ( ) = Next, determne K 0 - the strke prce mmedately below the forward ndex level, F - for the nearand next-term optons. In ths example, K 0, = 960 and K 0, = 960. Select out-of-the-money put optons wth strke prces < K 0. Start wth the put strke mmedately lower than K 0 and move to successvely lower strke prces. Exclude any put opton that has a bd prce equal to zero (.e., no bd). As shown below, once two puts wth consecutve strke prces are found to have zero bd prces, no puts wth lower strkes are consdered for ncluson. (Note that the 350 and 355 put optons are not ncluded despte havng non-zero bd prces)

7 HE CBOE VOLAILIY INDEX - VIX 7 Put Strke Bd Ask Include? Not consdered followng two zero bds No No Yes Yes Yes.... Next, select out-of-the-money call optons wth strke prces > K 0. Start wth the call strke mmedately hgher than K 0 and move to successvely hgher strke prces, excludng call optons that have a bd prce of zero. As wth the puts, once two consecutve call optons are found to have zero bd prces, no calls wth hgher strkes are consdered. (Note that the 5 call opton s not ncluded despte havng a non-zero bd prce.) Call Strke Bd Ask Include? Yes Yes No Yes No No Not consdered followng two zero bds Fnally, select both the put and call wth strke prce K 0. Notce that two optons are selected at K 0, whle a sngle opton, ether a put or a call, s used for every other strke prce. he followng table contans the optons used to calculate the VIX n ths example. VIX uses the average of quoted bd and ask, or md-quote, prces for each opton selected. he K 0 put and call prces are averaged to produce a sngle value. he prce used for the 960 strke n the near-term s, therefore, ( )/ =.775; and the prce used n the next-term s ( )/ = 6.0.

8 HE CBOE VOLAILIY INDEX - VIX 8 Near term Strke Opton ype Mdquote Prce Next term Strke Opton ype Mdquote Prce 370 Put Put Put Put Put Put Put Put Put Put 3.0 Put/Call Put/Call Average Average 965 Call Call Call Call Call 0. 5 Call Call Call 0. 5 Call Call 0.08 SEP : Calculate volatlty for both near-term and next-term optons Applyng the VIX formula () to the near-term and next-term optons wth tme to expraton of and, respectvely, yelds: σ = K R e K Q( K ) F K 0 σ = K R e K Q( K ) F K 0 VIX s an amalgam of the nformaton reflected n the prces of all of the selected optons. he contrbuton of a sngle opton to the VIX value s proportonal to ΔK and the prce of that opton, and nversely proportonal to the square of the opton s strke prce. Generally, ΔK s half the dfference between the strke prces on ether sde of K. For example, the ΔK for the next-term 35 Put s 37.5: ΔK 35 Put = (350 75)/. At the upper and lower edges of any gven strp of optons, ΔK s smply the dfference between K and the adjacent strke prce. In ths example, the 370 Put s the lowest strke n the strp of near-term optons and 375 s the adjacent strke. herefore, ΔK 370 Put = 5 (.e., ).

9 HE CBOE VOLAILIY INDEX - VIX 9 he contrbuton of the near-term 370 Put s gven by: K K 370 Put 370 Put e R K370 Put R e 370 Put K Q(370 Put) 5 ) ( Q(370 Put) = (0.0) 370 e = A smlar calculaton s performed for each opton. he resultng values for the near-term optons are then summed and multpled by /. Lkewse, the resultng values for the next-term optons are summed and multpled by /. he table below summarzes the results for each strp of optons. Near term Strke Opton ype Mdquote Prce Contrbuton by Strke Next term Strke Opton ype Mdquote Prce Contrbuton by Strke 370 Put Put Put Put Put Put Put Put Put Put Put/Call Average Put/Call Average Call Call Call Call Call Call Call Call Call Call K R e Q( K ) K R e Q( K ) K K Next, calculate F for the near-term ( ) and next-term ( ): K 0 F K 0 = = F K 0 = = Now calculate σ and σ : σ = K R e K Q( K ) F K 0 = = σ = K R e K Q( K ) F K 0 = =

10 HE CBOE VOLAILIY INDEX - VIX 0 CBOE publshes the near-term and next-term VIX components, σ and σ, under tcker symbols VIN (CBOE Near-erm VIX) and VIF (CBOE Far-erm VIX) every 5 seconds durng each CBOE tradng day. SEP 3: Calculate the 30-day weghted average of σ and σ. hen take the square root of that value and multply by 00 to get VIX. VIX = 00 N σ N N N 30 N + σ N 30 N N N N he ncluson of SPX Weeklys n the VIX calculaton means that the near-term optons wll always have more than 3 days to expraton and the next-term optons always have less than 37 days to expraton, so the resultng VIX value wll always reflect an nterpolaton of σ and σ ;.e., each ndvdual weght s less than or equal to and the sum of the weghts equals. Returnng to the example N = number of mnutes to settlement of the near-term optons (35,94) N = number of mnutes to settlement of the next-term optons (46,394) N 30 = number of mnutes n a 30 days (30 x,440 = 43,00) N 365 = number of mnutes n a 365-day year (365 x,440 = 55,600) VIX = 00 x 46,394 43,00 43,00 35,94 55, ,394 35,94 46,394 35,94 43,00 VIX = 00 x = 3.69

11 HE CBOE VOLAILIY INDEX - VIX NOES ON CALCULAING OHER CBOE VOLAILIY INDEXES CBOE SHOR-ERM VOLAILIY INDEX (VXS) On October, 03, CBOE ntroduced the CBOE Short-erm Volatlty Index (VXS SM ), the frst volatlty ndex to ncorporate weekly optons. Whereas the VIX calculaton s a measure of thrty-day expected volatlty, the VXS calculaton uses shorter-dated S&P 500 Index optons than those used n the VIX calculaton to reflect that the VXS calculaton s a measure of nne-day expected volatlty. he unverse of S&P 500 Index optons used n the VXS calculaton ncludes SPX optons wth standard 3 rd Frday expraton dates and weekly SPX optons that expre every Frday, except on the 3 rd Frday of each month. VXS futures began tradng on CFE n February 04; CBOE began tradng VXS optons n Aprl 04. More nformaton on VXS may be found on the CBOE webste at BROAD-BASED VOLAILIY INDEXES CBOE calculates volatlty ndexes on three other broad-based ndexes representng dfferent segments of the U.S. stock market: CBOE DJIA Volatlty Index (VXD) based on optons on the Dow Jones Industral Average (DJX); CBOE Nasdaq-00 Volatlty Index (VXN) based on Nasdaq-00 Index (NDX) optons; and CBOE Russell 000 Volatlty Index (RVX) based on Russell 000 Index (RU) optons. CBOE S&P Month Volatlty Index (VXV) & CBOE S&P Month Volatlty Index (VXM) based on S&P 500 Index (SPX) opton For each of these ndexes, the calculaton s dentcal to the method detaled n the prevous example, except that CBOE ncludes only standard (.e., 3 rd Frday expraton) opton seres n the calculaton. he CBOE S&P Month Volatlty Index (VXV) and CBOE S&P Month Volatlty Index (VXM) measures the market s expectaton of 3- and 6-month volatlty mpled by SPX optons that bracket a 93- and 86-day maturty, respectvely. Comparng VIX, VXV and VXM provdes nvestors wth useful nformaton about the SPX volatlty term structure n the most actve contract months. COMMODIY, CURRENCY, INERNAIONAL & SECOR VOLAILIY INDEXES CBOE calculates three commodty volatlty ndexes, one currency volatlty ndex, four nternatonal volatlty ndexes and two sector volatlty ndexes: CBOE Crude Ol EF Volatlty Index (OVX) based on Unted States Ol Fund, LP (USO) optons; CBOE Gold EF Volatlty Index (GVZ) based on the, SPDR Gold Shares (GLD) optons; CBOE Slver EF Volatlty Index (VXSLV) based on Shares Slver rust (SLV) optons CBOE EuroCurrency EF Volatlty Index (EVZ) based on CurrencyShares Euro rust (FXE) optons CBOE Emergng Markets EF Volatlty Index (VXEEM) based on Shares MSCI Emergng Markets Index Fund (EEM) optons CBOE EFA EF Volatlty Index (VXEFA) based on Shares MSCI EAFE Index Fund (EFA) optons CBOE Brazl EF Volatlty Index (VXEWZ) based on Shares MSCI Brazl Index Fund (EWZ) optons CBOE Chna EF Volatlty Index (VXFXI) based on Shares rust FSE Chna 5 Index Fund (FXI) optons CBOE Gold Mners EF Volatlty Index (VXGDX) based on Market Vectors Gold Mners Fund (GDX) optons CBOE U.S. Energy EF Sector Volatlty Index (VXXLE) based on Energy Select Sector SPDR (XLE) optons

12 HE CBOE VOLAILIY INDEX - VIX Each of these volatlty ndexes are calculated usng exchange traded fund, or EF, optons that trade lke optons on ndvdual stocks - they may be exercsed pror to ther expraton date; exercse results n the delvery of EF shares rather than cash; and they settle at the close of tradng rather than at the open. For each of the commodty, currency, nternatonal and sector volatlty ndexes, the formula s dentcal to that used for the VIX calculaton. However, as wth the other broad-based volatlty ndexes descrbed above, only standard 3 rd Frday exprng seres are selected as component optons. Moreover, there s a slght dfference n the methodology that accounts for the fact that EF optons expre at the close rather than at the open. Specfcally, the tme to expraton used to calculate volatlty ndexes vares dependng on the settlement type (A.M.-settlement, P.M.-settlement) of the consttuent opton seres and the tradng hours of the consttuent opton seres on ther expraton date. As before, the tme to expraton s gven by the followng expresson: = {M Current day + M Settlement day + M Other days } / Mnutes n a year WHERE... M Current day = mnutes remanng untl mdnght of the current day M Other day = total mnutes n the days between current day and settlement day But now, adjustng for p.m. settlement M Settlement day = mnutes from mdnght untl 3:00 p.m. on expraton day = 900 mnutes for 3:00 p.m.-expraton EF optons and M Settlement day = mnutes from mdnght untl 3:5 p.m. on expraton day = 95 mnutes for 3:5 p.m.-expraton EF optons (e.g., EEM, EFA and XLE optons) For example, assumng near- and next-term optons wth 9 and 37 days to expraton and 8:30 a.m. as the tme of the calculaton, for the near-term and next-term optons for the 3:00 p.m. expraton EF optons, and, respectvely, s: = { ,50} / 535,600 = = { ,840} / 55,600 = 0.08

13 HE CBOE VOLAILIY INDEX - VIX 3 EQUIY VIX VOLAILIY INDEXES CBOE calculates fve Equty VIX ndexes based on the prces of optons on ndvdual stocks: CBOE Equty VIX on Apple (VXAPL) CBOE Equty VIX on Amazon (VXAZN) CBOE Equty VIX on Goldman Sachs (VXGS) CBOE Equty VIX on Google (VXGOG) CBOE Equty VIX on IBM (VXIBM) Equty VIX values are calculated usng the standard VIX formula. However, Equty VIX ndexes use only standard 3 rd Frday exprng optons n order to calculate these values. Lke the commodty, currency, nternatonal and sector volatlty ndexes, the tme to expraton for the Equty VIX ndexes reflect the fact that optons on ndvdual stocks expre at the close, and thus have more tme to trade, than optons (such as standard SPX optons n the VIX calculaton) that expre at the open on ther expraton day. Specal Note: All CBOE volatlty ndexes are calculated usng opton prce quotes from CBOE exclusvely.

14 HE CBOE VOLAILIY INDEX - VIX 4 he nformaton n ths document s provded for nformaton purposes only, and s not ntended to provde, and should not be reled on for fnancal or legal advce. he CBOE Volatlty Index (VIX ndex) and all other nformaton provded by Chcago Board Optons Exchange, Incorporated (CBOE) and ts afflates and ther respectve drectors, offcers, employees, agents, representatves and thrd party provders of nformaton (the Partes ) n connecton wth the VIX Index (collectvely Data ) are presented as s and wthout representatons or warrantes of any knd. he Partes shall not be lable for loss or damage, drect, ndrect or consequental, arsng from any use of the Data or acton taken n relance upon the Data. Optons nvolve rsk and are not sutable for all nvestors. Pror to buyng or sellng an opton, a person must receve a copy of Characterstcs and Rsks of Standardzed Optons. Copes are avalable from your broker, by callng -888-OPIONS or from he Optons Clearng Corporaton at Futures tradng s not sutable for all nvestors, and nvolves rsk of loss. No statement wthn ths document should be construed as a recommendaton to buy or sell a securty or futures contract or to provde nvestment advce. It s not possble to nvest drectly n an ndex. he VIX ndex methodology s the property of CBOE. CBOE, Chcago Board Optons Exchange, CFE, CBOE Volatlty Index, OEX and VIX are regstered trademarks and CBOE Futures Exchange SM, Weeklys SM, CBOE Short-erm Volatlty Index, VXS SM, SPXW SM, VXM SM, VXXLE SM, VXEEM SM, VXEFA SM, VXGDX SM, VXSLV SM, VXEWZ SM, VXFXI SM, VXAPL SM, VXAZN SM, VXGS SM, VXGOG SM, VXIBM SM, EVZ SM, GVZ SM, OVX SM, RVX SM, SPX SM, VXD SM, VXN SM, VXO SM and VXV SM are servce marks of CBOE. CBOE and ts afflates do not sponsor, endorse, sell or promote any thrd party nvestment product that s or may be based on the VIX Index. Standard & Poor s, S&P, S&P 00 and S&P 500 are regstered trademarks of Standard & Poor s Fnancal Servces, LLC and have been lcensed for use by CBOE. Fnancal products based on S&P ndces are not sponsored, endorsed, sold or promoted by Standard & Poor s, and Standard & Poor s makes no representaton regardng the advsablty of nvestng n such products. DJIA and Dow Jones Industral Average SM are trademarks or servce marks of Dow Jones rademark Holdngs, LLC and have been lcensed to CME Group Index Servces, LLC and sublcensed for use for certan purposes by CBOE. Nasdaq-00 Index, Nasdaq-00 and Nasdaq are trademark or servce marks of he Nasdaq Stock Market, Inc. (wth whch ts afflates are the Corporatons ). hese marks are lcensed for use by CBOE n connecton wth the tradng of products based on the Nasdaq-00 Index. he products have not been passed on by the Corporatons as to ther legalty or sutablty. he products are not ssued, endorsed, sold or promoted by the Corporatons. HE CORPORAIONS MAKE NO WARRANIES AND BEAR NO LIABILIY WIH RESPEC O HE PRODUC(S). Russell 000 s a regstered trademark of Russell Investments, used under lcense. All other trademarks and servce marks are the property of ther respectve owners. Redstrbuton, reproducton and/or photocopyng n whole or n part are prohbted wthout the wrtten permsson of CBOE. Copyrght 04 CBOE. All rghts reserved.

15 HE CBOE VOLAILIY INDEX - VIX 5 APPENDIX - Complete SPX Opton Data Used n Sample VIX Calculaton Opton Seres ncluded n the VIX calculaton are hghlghted. Near-erm Optons Next-erm Optons Strke Calls Puts Calls Puts Strke Bd Ask Bd Ask Bd Ask Bd Ask

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18 HE CBOE VOLAILIY INDEX - VIX

19 HE CBOE VOLAILIY INDEX - VIX

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