S&P/TSX 60 VIX Index (VIXC)
Last update: September 19, 2014 at 4:19 p.m.
|S&P/TSX 60 VIX Index||12.74||1.09|
VIXC – S&P/TSX 60
(Last 6 months)
The S&P/TSX 60 VIX® index (VIXC) estimates the 30-day volatility of the stock market that is implied by the near-term and next-term options on the S&P/TSX 60 index.
VIX has negative correlations to the stock market historically and is considered a useful tool to hedge the potential downturn of the broad equity market. While the S&P/TSX 60 index options have various expirations, VIXC indicates the implied volatility of the fixed 30-day period.
Since the VIXC methodology uses S&P/TSX 60 index options, VIXC is a good proxy of investor sentiment for the Canadian equity market: the higher the index, the greater the risk of market turmoil. A rising index therefore reflects the heightened fears of investors for the coming month. VIXC also gives an indication of whether options are relatively cheap or expensive, as the higher the implied volatility, the higher option premiums are.
"Implied volatility" represents the volatility built into the price of an option in the market. Implied volatility is important because it determines market consensus about the probable volatility of the underlying stock in the future.
What is VIXC?
In 2002, the Montréal Exchange (MX) introduced the MX Implied Volatility index (MVX) reflecting market expectation of how relatively volatile the stock market will be over the next month. MVX was calculated from current prices of at-the-money options on the iShares of the CDN S&P/TSX 60 Fund (XIU).
The new VICX still measures market expectation of the stock market volatility over the next month. However, VIXC approximates the 30-day volatility of the Canadian stock market that is implied by the near-term and next-term options on the S&P/TSX 60 index (SXO).
Why is MX making changes to the MVX?
The MVX methodology was similar to the old CBOE VIX® methodology developed in 1993. In 2003, the CBOE switched to a new methodology to calculate its VIX index—allowing volatility to become a new tradable asset class. These changes allow creating a new, more precise and robust VIX index that can be used as an underlying asset in the creation of derivative products. The new methodology is based on a model-free volatility model (rather than using a parametric model such as Black & Scholes) and uses a cross-section of option prices.
In light of market interest for options and futures contracts on volatility indices, MX has decided to replace the old MVX methodology by the 2003 CBOE methodology. Standard & Poor's (S&P) has executed a license agreement with CBOE granting S&P the right to the VIX marks and methodology to be applied to the S&P/TSX 60 index. TMX Group (parent company of the Montréal Exchange) has negotiated with S&P for a sublicense for the use of 2003 CBOE methodology for the new S&P/TSX 60 VIX index.
MX's objectives are to provide a leading indicator of the expected volatility of the Canadian stock market and to introduce derivative products (options and futures) on the index when market conditions are right.
What will happen to the original MVX?
MX will stop calculating and disseminating the original MXV index calculated using XIU options. However, MVX historical data (December 2002 to October 2010) will still be available.
What are the major changes between the old MVX and the new VIXC?
The new VIXC methodology proposes four significant changes:
- The new VIXC is calculated using a wide range of strike prices in order to capture the whole volatility skew. MVX was using at-the-money strikes only.
- The new VIXC methodology takes a cross-section of option prices and calculates volatility that does not need to depend on any parametric model. MVX calculated the implied volatility using an iteration algorithm based on the Black & Scholes model.
- The new VIXC is based on options on the S&P/TSX 60 index, the Canadian benchmark index. MVX was based on XIU options.
- In calculating VIXC, options are rolled on the fifth calendar day prior the expiration of the near-term options in order to minimize the pricing anomalies from the heavy trading on the expiring options during the last trading days. In calculating MVX, options were rolled on the eight calendar day prior to this expiry.
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"VIX®" is the trademark of the Chicago Board Options Exchange ("CBOE"), used by Standard & Poor's Financial Services LLC ("S&P"), TSX Inc. ("TSX") and their affiliates with the permission of CBOE. "S&P" is the trademark of S&P and "TSX" is the trademark of TSX. The VIX Methodology is the property of the CBOE. CBOE has granted S&P Dow Jones Indices LLC a license to use the VIX Methodology to create the S&P/TSX 60 VIX index and has agreed that S&P or its affiliate may permit values of the S&P/TSX 60 VIX index to be disseminated. Neither CBOE nor S&P nor TSX or their respective affiliates makes any representation regarding such index or the advisability of relying on such index for any purpose. Neither CBOE nor S&P or their respective affiliates sponsors, endorses, sells or promotes any investment product that is or may be based on the S&P/TSX 60 VIX index. Neither TSX nor its affiliates sponsors, endorses or promotes any third party investment product that is or may be based on the S&P/TSX 60 VIX index.