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Computerized Investing > Third Quarter 2010

CBOE’s Volatility Index (VIX)

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by CI Staff

Over the last couple of years, a great deal of attention has been paid to the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX for short. The VIX is a measure of the implied or expected volatility of S&P 500 options over the next 30 days. Unlike historical volatility, which is the measure of the underlying market’s actual fluctuation over a defined period, implied volatility is the market’s estimated future volatility and is reflected in the premiums paid for options.

Originally launched in 1993, the VIX underwent a change in calculation in September 2003. The “original” VIX, which is still tracked under the ticker VXO, was calculated using at-the-money put and call options on the S&P 100 index (OEX). Furthermore, the original VIX was based on prices of only eight at-the-money OEX puts and calls, as these were the most actively traded index options at the time.

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