FTSE introduces UK and Italian equivalents of the VIX

Feb 27th, 2013 | By | Category: ETF and Index News

FTSE Group, a leading global index provider, has introduced the FTSE Implied Volatility Index Series (IVI), a new suite of indices that measure the implied volatility of the UK’s FTSE 100 and Italy’s FTSE MIB stock indices. The indices will likely be seen as local equivalents of the widely followed CBOE Volatility Index (VIX).

FTSE introduces UK and Italian equivalents of the VIX, the FTSE Implied Volatility Index Series (IVI)

FTSE Group has introduced the FTSE Implied Volatility Index Series, a new suite of indices measuring the implied volatility of the FTSE 100 and FTSE MIB.

Peter Gunthorp, Managing Director, Research & Analytics, FTSE Group, said: “We are delighted to announce the launch of the FTSE Implied Volatility Index Series, which provides investors with an indicator of market sentiment and potential future volatility. The new index series is calculated using an improved algorithm which captures the curvature of the index option price profile better than other approaches.”

Sudir Raju, Managing Director, ETP Relationships (EMEA), FTSE Group, added: “Volatility is a key component in the pricing of structured products and volatility indices are widely used as the underlying for tradable volatility products. The FTSE IVI allows a wider investor base, including institutional and retail investors, asset allocators and hedge funds, to observe equity index volatility more easily.”

For each market 30, 60, 90 and 180-day implied volatility estimates are available. Additionally, a 360-day implied volatility estimate is available for the FTSE 100. All indices are calculated and disseminated on an end of day basis.

In addition to the VIX, which dominates in the US, the other leading implied volatility index currently on investors’ radar is the Euro Stoxx 50 Volatility Index (VSTOXX). The VSTOXX is widely viewed as Europe’s equivalent of the VIX.

The VIX, which was introduced by the Chicago Board Option Exchange (CBOE), measures the market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, the index has become the world’s most prominent barometer of investor sentiment and market volatility and is commonly referred to as Wall Street’s ‘fear gauge’.

Introduced by Stoxx in 2005, the VSTOXX is based on similar principles to the VIX and measures the market expectations of volatility as implied by Euro Stoxx 50 options. Stoxx also offers implied volatility indices on Germany’s DAX index and Switzerland’s SMI index. FTSE’s launch of UK and Italian implied volatility indices fills an important gap in the market.

Both the VIX and VSTOXX are used as underlying indices for a range of exchange-traded products (ETPs). Examples include the S&P 500 VIX Futures Source ETF (VIXS) and Lyxor ETF S&P 500 VIX Futures Enhanced Roll (LVX) based on the VIX, and the ETF Securities ETFX-BofAML iVSTOXX ETF (VSTX) and Barclays iPath VSTOXX Short-Term Futures TR ETN (VSXX) on the VSTOXX.

Given the success of existing volatility-based ETPs, which have gathered many billions in assets globally, some kind of index-linked product based on these new indices – particularly the FTSE 100 version – seems eminently possible.

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