S&P 500 Dynamic VIX Fuures Index Mehodology April 2014 S&P Dow Jones Indices: Index Mehodology
Table of Conens Inroducion 2 Highlighs 2 Family 2 Index Consrucion 3 Consiuens 3 Allocaions 3 Excess Reurn (ER) Calculaions 4 Toal Reurn (TR) Calculaions 5 Base Dae 6 Index Governance 7 Index Commiee 7 Index Policy 8 Announcemens 8 Holiday Schedule 8 Index Disseminaion 9 Tickers 9 S&P Dow Jones Indices Conac Informaion 10 Index Managemen 10 Produc Managemen 10 Media Relaions 10 Clien Services 10 Disclaimer 11 S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 1
Inroducion The S&P 500 Dynamic VIX Fuures Index series dynamically allocaes beween he shor-erm and mid-erm VIX fuures indices excess reurn o provide cos efficien exposure o forward implied volailiy. I uses The S&P 500 VIX Shor-Term Fuures Index Excess Reurn The S&P 500 VIX Mid-Term Fuures Index Excess Reurn Highlighs Implied equiy volailiy has hisorically had a srongly negaive correlaion o equiy marke reurns and is considered a useful ool o hedge agains he poenial downside of he broad equiy marke. The S&P 500 VIX Fuures Indices model he oucome of holding long posiions in VIX fuures conracs ha mainain consan mauriy. Exchange raded producs based on hese indices provide convenien access o implied volailiy. For more informaion on he S&P 500 VIX Fuures Indices, please refer o S&P 500 VIX Fuures Index mehodology documen. The S&P 500 Dynamic VIX Fuures Index moniors he seepness of he implied volailiy curve o provide informaion abou fuure expecaions of marke volailiy and he expeced roll cos of VIX fuures invesmens. The S&P 500 Dynamic VIX Fuures Index dynamically allocaes beween posiions across he VIX fuures curve aiming o lower he holding cos of invesmens linked o forward implied volailiy. The allocaions are evaluaed daily, hough changes in allocaion may occur less frequenly. Family The S&P 500 Dynamic VIX Fuures Index series belongs o he family of S&P 500 volailiy linked indices which includes, among ohers, VIX 1 (Chicago Board Opions Exchange Volailiy Index), he S&P 500 Volailiy Arbirage Index and he S&P 500 VIX Fuures Index Series. 1 VIX is a regisered rademark of Chicago Board Opions Exchange, Incorporaed. The VIX mehodology is he propery of he Chicago Board Opions Exchange ("CBOE"). S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 2
Index Consrucion Consiuens The S&P 500 Dynamic VIX Fuures Index is comprised of wo componens: Allocaions 1. Shor-erm volailiy, represened by he S&P 500 VIX Shor-Term Fuures Index Excess Reurn 2. Mid-erm volailiy, represened by he S&P 500 VIX Mid-Term Fuures Index Excess Reurn On any business day,, he S&P 500 Dynamic VIX Fuures Index allocaes beween he shor-erm and mid-erm volailiy based on of he implied volailiy erm srucure variable (IVTS). While he allocaions are reviewed daily, hey may change on a less frequen basis. The arge allocaions o he shor-erm volailiy (TS) and he mid-erm volailiy (TM) are deermined by he implied volailiy erm srucure (IVTS) and implied volailiy rend (IVT) as follows: Implied Volailiy Term Srucure IVTS ) ( 1 Targe Shor-Term Volailiy Allocaion TS ) ( Targe Mid-Term Volailiy Allocaion TM ) ( Less han 90% -0.30 0.70 90% IVTS -1 < 100% -0.20 0.80 100% IVTS -1 < 105% 0 1.00 105% IVTS -1 115% 0.25 0.75 More han 115% 0.50 0.50 S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 3
The S&P 500 Dynamic VIX Fuures Index limis he size of changes o is daily allocaion rebalancing. The Shor-Term and Mid-Term Volailiy Allocaions (S and M, respecively) are deermined as follows: S M S 1 if S 1 = TS = min( S 1 + 0.125, TS ) if S max( S 1 0.125, TS ) if S 1 1 M 1 if M 1 = TM = min( M 1 + 0.125, TM ) if M max( M 1 0.125, TM ) if M < TS > TS 1 1 < TM > TM (1) Evaluaing implied volailiy erm srucure The implied volailiy erm srucure measures he slope of he VIX fuures curve. Le IVTS denoe he implied volailiy erm srucure, where: IVTS 1 = VIX VXV 1 1 (2) where: VIX -1 and VXV -1 refer o he CBOE Volailiy Index (VIX) and he CBOE S&P 500 3-Monh Volailiy Index (VXV), respecively. Excess Reurn (ER) Calculaions On any business day,, he excess reurn index levels are calculaed. The excess reurn indices assume no accruals from cash. The S&P 500 Dynamic VIX Fuures Index excess reurn is calculaed as follows: where: ( + S * SEDR M MEDR ) IndexER = IndexER * (3) 1 1 1 r + 1 IndexER -1 = The S&P 500 Dynamic VIX Fuures Index Excess Reurn on he preceding business day, -1 S 1 = Allocaion o he S&P 500 VIX Shor-Term Fuures Index on he prior business day, -1 SEDR = Shor-Term Volailiy Daily Excess Reurn, as deermined by he following formula: S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 4
SPVXSP SEDR = 1 (4) SPVXSP where: 1 SPVXSP = The S&P 500 VIX Shor-Term Fuures Excess Reurn Index closing level on he curren business day,. M 1 = Allocaion o he S&P 500 VIX Mid-Term Fuures Index on he prior business day, -1 MEDR = Mid-Term Volailiy Daily Excess Reurn, as deermined by he following formula: SPVXMP MEDR = 1 (5) SPVXMP where: 1 SPVXMP = The S&P 500 VIX Mid-Term Fuures Excess Reurn Index closing level on he curren business day,. Toal Reurn (TR) Calculaions A oal reurn index is calculaed for he S&P 500 Dynamic VIX Fuures Index, which includes ineres based on he hree-monh U.S. Treasury rae. ( + S * SEDR + M MEDR TBR ) = IndexTR 1 1 r 1 * IndexTR 1 + (6) where: IndexTR -1 = The S&P 500 Dynamic VIX Fuures Index Toal Reurn on he preceding business day, -1 S 1 = Allocaion o he S&P 500 VIX Shor-Term Fuures Index on he prior business day, -1 SEDR = Shor-Term Volailiy Daily Excess Reurn, as deermined by formula (4) M 1 = Allocaion o he S&P 500 VIX Mid-Term Fuures Index on he prior business day, -1 MEDR = Mid-Term Volailiy Daily Excess Reurn, as deermined by formula (5) S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 5
Base Dae TBR = Treasury Bill Reurn, as deermined by he following formula: Dela 91 1 TBR = 1 (7) 91 1 * TBAR 1 360 Dela = he number of calendar days beween he curren and previous business days. TBAR -1 = he mos recen weekly high discoun rae for 91-day US Treasury bills effecive on he preceding business day. Generally he raes are announced by he US Treasury on each Monday. On Mondays ha are bank holidays, Friday s raes will apply. The base dae for he indices is December 20, 2005 and he base value is 1,000 for boh he excess and oal reurn indices. S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 6
Index Governance Index Commiee The Commodiies Index Commiee mainains he S&P 500 Dynamic VIX Fuures Indices. The commiee mees regularly. A each meeing, he Index Commiee reviews any significan marke evens. In addiion, he Index Commiee may revise index policy for iming of rebalancings or oher maers. S&P Dow Jones Indices considers informaion abou changes o is indices and relaed maers o be poenially marke moving and maerial. Therefore, all Index Commiee discussions are confidenial. S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 7
Index Policy Announcemens Announcemens of he daily index values are made afer he close of he CBOE Fuures Exchange each day. Holiday Schedule The index is calculaed daily when he S&P 500 VIX Fuures Index Series are calculaed. S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 8
Index Disseminaion Hisorical index reurns are available hrough S&P Dow Jones Indices daa group for subscripion via FTP. Tickers Index S&P 500 Dynamic VIX Fuures Index ER S&P 500 Dynamic VIX Fuures Index TR S&P 500 Dynamic VIX Fuures Index ER (Official Close) S&P 500 Dynamic VIX Fuures Index TR (Official Close) Bloomberg SPDVIXE SPDVIXT SPDVIXP SPDVIXTR S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 9
S&P Dow Jones Indices Conac Informaion Index Managemen David M. Blizer, Ph.D. Managing Direcor & Chairman of he Index Commiee david.blizer@spdji.com +1.212.438.3907 Mark Berkenkopf Team Leader, Commodiy mark.berkenkopf@spdji.com +1.212.438.3244 Produc Managemen Reid Seadman Managing Direcor reid.seadman@spdji.com +1.212.438.4675 Media Relaions David Guarino Communicaions dave.guarino@spdji.com +1.212.438.1471 Clien Services index_services@spdji.com Beijing +86.10.6569.2770 Dubai +971.4.371.7131 Hong Kong +852.2532.8000 London +44.20.7176.8888 New York +1.212.438.2046 or +1.877.325.5415 Sydney +61.2.9255.9802 Tokyo +81.3.4550.8564 S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 10
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