Published On: Tue, Sep 21st, 2010

S&P and ASX Launch Equity Volatility Index

Standard & Poor’s (S&P) and the Australian Securities Exchange (ASX), a subsidiary of the ASX Group, announce the launch of an Australian equity volatility benchmark – the S&P/ASX 200 VIX (ASX code: XVI) – which will be available commencing Thursday, 23 September 2010.

The S&P/ASX 200 VIX will be an end-of-day index that reflects investor sentiment about the expected volatility in the Australian benchmark equity index, the S&P/ASX 200.

A volatility index at a higher level generally implies a market expectation of large changes in the S&P/ASX 200 over the next 30 days, indicating that investor sentiment is uncertain. Conversely, a lower volatility index value generally implies a market expectation of little change, suggesting greater levels of investor confidence.

The S&P/ASX 200 VIX will reflect expected equity market volatility over the next 30 days by using settlement prices for S&P/ASX 200 put and call options to calculate a weighted average of the implied volatility incorporated into the options. The calculation will use proprietary methodology of the Chicago Board Options Exchange (CBOE).

Richard Murphy, ASX General Manager, Equity Markets, said: “The new volatility index will provide investors, financial media, researchers and economists with a means to gauge the level of volatility anticipated in the Australian equity market over the near-term. More specifically, because the S&P/ASX 200 VIX is a forward looking volatility measure, observers of the index will have insight into the degree of uncertainty among investors and their expectations regarding the magnitude of future movements in the local equity market.

It is a valuable complement to the existing suite of S&P/ASX indices.” Guy Maguire, Head of S&P Indices in Australia, said: “The introduction of a volatility index for the Australian equity market is a sign of Australia’s standing in the global investment community, and the requirement for a means by which Australian investment conditions and performance can be viewed in a manner that is distinct from other markets.”

“We are pleased to extend the use of the CBOE’s VIX methodology to the ASX through our partnership with
S&P,” said CBOE Executive Vice President Richard DuFour. “The VIX methodology has become the recognised standard for measuring implied volatility, and we are confident that its use by ASX will add value for market participants.”

The S&P/ASX 200 VIX will initially be available as an end-of-day index from ASX, with back data published on the ASX website at ASX will consider making the index available in realtime and launching derivative products over the volatility index at a later date.

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