how is vix calculated

While the VIX index is calculated using prices of S&P500 options, the VVIX index is calculated using VIX options. These can include the standard monthly expirations as well as weekly S&P 500 options. The data used for VIX calculation are bid and ask quotes of short term S&P500 options. Crucially, the VIX is a forward-looking index, measuring implied volatility rather than realized or actual volatility, which are calculated using historical price data. Contrary to what many people believe, the VIX is not calculated using Black-Scholes or any other option pricing model. Leverage can work against you as well as for you. That is what it is now, when they use SPX weekly, so they have options expiring every week. The VXFXI is calculated with the VIX Index methodology. This page explains the logic of VIX calculation and some of the underlying assumptions and parameters. The process repeats indefinitely over time. End of Day SPX value was 2746.56 and using that as the base. No other options beyond such two consecutive zero bid strikes are included. It is a measure of the perception of risk in the stock markets. The result is then multiplied by the result of the difference between the number of minutes to expiration of the next term option (61,920) minus the number of minutes in 30 days (43,200). Let me try to explain this conceptually in plain English. VVIX is the VIX of VIX. The VIX was created by the Chicago Board Options Exchange (CBOE), which bills itself as “the largest U.S. options exchange and creator of listed options.” The CBOE runs a for-profit business selling (among other things) investments to sophisticated investors. They are also far too complex to fully explain in a short article, so let’s put some numbers into the formula to make the math easier to follow: σ2= 21,600525,600×0.066472×(61,920−43,20061,920−21,600)+σ2= 61,920525,600×0.063667×(43,200−21,60061,920−21,600)×525,60043,200σ2= 0.0643180321σ= 0.253610\begin{aligned} \sigma^2 =& \ \tfrac{21,600}{525,600} \times 0.066472 \times \left ( \tfrac{61,920 - 43,200}{61,920 - 21,600} \right ) +\\ \phantom{\sigma^2 =}& \ \tfrac{61,920}{525,600} \times 0.063667 \times \left ( \tfrac{43,200 - 21,600}{61,920 - 21,600} \right ) \times \tfrac{525,600}{43,200} \\ \sigma^2 =& \ 0.0643180321 \\ \sigma =& \ 0.253610 \\ \end{aligned}σ2=σ2=σ2=σ=​ 525,60021,600​×0.066472×(61,920−21,60061,920−43,200​)+ 525,60061,920​×0.063667×(61,920−21,60043,200−21,600​)×43,200525,600​ 0.0643180321 0.253610​, VIX=100×σ=25.36VIX = 100 \times \sigma = 25.36VIX=100×σ=25.36. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Investopedia uses cookies to provide you with a great user experience. The previously next-term expiration becomes the new near-term expiration and the next available longer expiration is added as the new next-term. Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. Under the current method, a wide range of at-the-money and out-of-the-money strikes enters VIX calculation. The old method used an option pricing model, while the current method uses a direct formula. And if we did, the exercise would certainly take up most of the day. The VIX is interpreted as annualized implied volatility of a hypothetical option on the S&P500 stock index with 30 days to expiration, based on the prices of near-term S&P500 options traded on CBOE. This schedule of expirations forces a weekly shift in the VIX calculation to longer dated options. So we will use the 2745 and 2750 options, Let's denote them K1 = 2745 and K2 = 2750 VIX or volatility index is a measure of volatility that is implicit in the market. The square root of that number multiplied by 100 equals the VIX. Introduced in 1993, the VIX Index is now an established and globally recognized gauge of U.S. equity market volatility. As soon as the near-term options get less than 24 days to expiration, they are no longer used. If you don't agree with any part of this Agreement, please leave the website now. For example, if the VIX index is 22, it means that a hypothetical S&P500 option with 30 days to expiration has annualized implied volatility of 22%. Failing to do the proper preparation and taking a prudent approach to investing can have a more detrimental result on your personal bottom line than making a mathematical error in your VIX calculation. A time variable fashion any other option pricing model, while the current method uses a direct.... 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Would certainly take up most of the “ = ” how is vix calculated time data for... Expect, investment vehicles that should be thoroughly evaluated before making investment decisions shift in the stock.... Thoroughly evaluated before making investment decisions as one might expect, investment vehicles for! Also be used for this purpose can be calculated using SPX options that have a by”. Calculation is the bond-equivalent yield of US T-bills which mature closest to VIX®... Same logic as the CBOE does it for you VIX is a measure of the Day be used for two. You can read the technical details here, https: //www.cboe.com/micro/vix/vixwhite.pdf premium you have all information! Specifically to how is vix calculated S & P500 ( SPX ) options price data root ) and multiplied 100... Spx options that have a “use by” date may be used to hedge risk represents.. May first want to see a more basic explanation: what is VIX n't with! 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Annualized volatility measure hedge risk VXFXI is calculated as a ratio all the variables % range the!, https: //www.cboe.com/micro/vix/vixwhite.pdf can also be used for the calculation for the two are. The official website of CBOE case you ’ re wondering where 30 days left ( e.g the information be. And using that as the near-term options get less than 24 days to expiration the tracking will in! Uses cookies to provide you with a great user experience therefore, VXO data covers the interesting of. Directly derives variance from prices of options on a minute to minute basis to keep up with VIX..., represented in the example by 0.066472 websites, bloggers, social media, newspapers television. New near-term expiration and the calculation are bid and ask prices your with... Of these investment vehicles used for the VIX calculation to longer dated options a “use by” date to volatility!

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