CVOL End of Day Index

The CME Group Volatility Index (CVOL) delivers the first ever cross-asset class family of implied volatility indices based on simple variance. Using our proprietary simple variance methodology that assigns equal weighting to strikes across the entire implied volatility curve, the CVOL Index produces a more representative measure of the market’s expectation of 30-day forward risk. The CVOL Indices and related derivative indicators are published daily via CME DataMine.  

For each product, the following CVOL indexes and indicators will be published:

• CVOL Index, the primary Implied Volatility Index

• Up Variance (“UpVar”)

• Down Variance (“DnVar”)

• Skew

• ATM

• Convexity

Products Available

The set of CVOL index products are:

**CVOL indexes will also be coming soon for other CME Group benchmark products.

Dates Available

Up to nine years of history are available to license for each CVOL End of Day index through CME Group DataMine.

Sample Files 

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CVOL: Indexes and Indicators

How do the CVOL Indexes work?

CVOL indexes measure the expected risk or implied volatility of an underlying future based on the information contained in the prices of options on that underlying future.  In general, the expectation has a 30-day forward-looking horizon.  The metric is an annualized standard deviation as used in typical option pricing models.  The index family also includes metrics predicated on just Out-of-the-Money (OTM) Calls and Out-of-the-Money OTM Puts, ‘UpVar’ and ‘DnVar’, respectively, which are holistically consistent with the metric generated by using both the Calls and the Puts together.  These related indexes provide insight into the direction that the collective market-place is expecting greater risk. 

What is Simple Variance?

Simple variance, also known as Gaussian Variance, is the square of the standard deviation of a normally distributed population.  Simple variance allows for the underlying asset or futures prices to be negative, such as interest rates, or even commodities, such as oil. 

This characteristic of Simple Variance distinguishes itself from Log Variance.  Log Variance, or the assumption that the underlying asset or future will exhibit a Log Normal distribution, does not allow for prices below zero. In fact, Log Variance swaps, which have been the most commonly employed variance swaps in the market-place for several decades, will have an infinite value if an asset actual priced at zero.   Other volatility indexes that use all the option prices from a specific tenor often attempt to build a replicating portfolio of that potentially infinite payoff.  This renders those Log Variance metrics as being not very “simple.”

CVOL indices are generated using Simple, or Gaussian Variance, as the base to provide a consistent and tractable metric that can be compared across different individual products for a given asset class, and additionally across asset classes themselves.

What is UpVar?

Up Variance or UpVar is a metric that employs the same method for estimating the Standard Deviation as Simple Variance, but specifically uses only OTM Calls in the calculation.  The variance estimate is then doubled or mirrored in order to provide an apples-to-apples analogue to the two-sided set of options used in the regular calculation. The UpVar indicator provides a value that isolates only the call wing and so reflects just th.

What is DownVar?

Down Variance or DnVar, like Up Variance, employs the same method for estimating the Standard Deviation as Simple Variance, but uses only OTM Puts in the calculation.  Similarly, the variance estimate is then doubled or mirrored in order to provide an apples-to-apples analogue to the two-sided set of options used in the regular calculation.

What is Skew?

Skew compares the Up Variance and Down Variance numbers to provide insight into how much implied volatility is priced into Calls compared to Puts. Two Skew numbers are provided, one showing the difference between the two (UpVar – DnVar), such that negative values indicate that the implied volatility is collectively higher for Puts than for Calls. The other Skew metric is the ratio of the two calculated by dividing the UpVar by the DnVar.  In this case, if the Puts had collectively higher implied volatility, the resulting measurement would be less than 1.0.

What is ATM?

The ‘at-the-money’ (ATM) indicator is the implied volatility of an option that has a strike exactly equal to the futures price. If the futures price happens to be exactly equal to an existing strike that is used in the CVOL calculation, that price is transformed into an implied volatility number using a closed-form formula. (Brenner-Subramaniam). If the futures price is between existing strikes, a synthetic ATM price is generated for that price using the closest existing option price and an assumption of 50 delta multiplied by the difference between that closest strike and the futures price.

What is Convexity?

The convexity indictor is the ratio of the CVOL metric to the ‘at-the-money’ (ATM) indicator. It is intended to provide a measure of the volatility “smile” that results from OTM options having individual implied volatilities that are successively greater.

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FAQ

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