Last update: Feb. 3, 2012 - 4:00 pm

Chart.

Description	Last	Chang.
Implied Volatility Index	17.30	-0.50

The Montréal Exchange introduces a new Implied Volatility Index (MVX) reflecting the market's expectation of how relatively volatile the stock market will be over the next month. MVX is calculated from current prices of at-the-money options on the iShares of the CDN S&P/TSX 60 Fund (XIU). MVX is an implied volatility index that is updated every minute of a trading day.   Since the value of XIU is derived from the S&P/TSX 60 Index - the equity benchmark in Canada - MVX is a good proxy of investor sentiment for the Canadian equity market: the higher the Index, the higher the risk of market turmoil. A rising Index therefore reflects the heightened fears of investors for the coming month. MVX also gives an indication of whether options are relatively cheap or expensive, as the higher the implied volatility, the higher options premiums become. "Implied Volatility" represents the volatility built into the price of an option in the market. Implied volatility is particularly important because it determines market consensus about the probable volatility of the underlying stock in the future.

The MVX Index is calculated from current prices of nearby at-the-money options on the iShares of the CDN S&P/TSX 60 Fund (XIU) that are traded on the Montréal Exchange. An example will help understanding the construction of the Index. Assume that the XIU price is 32$ on October, 10. The dividend yield of the XIU is 2.43% and the risk-free rate is 2.86%. The two up and down nearby at-the-money options contracts traded on the Montréal Exchange have an exercise price of 32.5 and 30, respectively.

Using an iteration algorithm based on the well-known Black & Scholes model, we obtained the implied volatility for each option and we average call and put implied volatilities for each strike and maturity: