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Volatility indices

Introduction

On 3 September 2007 Euronext launches a total of three new indices, further expanding its index portfolio: AEX® Volatility Index, BEL 20® Volatility Index and CAC 40® Volatility Index. These indices capture implied volatility embedded in option prices.

With the launch of the volatility indices, Euronext aims to contribute to the awareness of one of the main determinants of option pricing, implied volatility, and to stimulate the trading of standard index options and Variance futures available from Liffe.

Market participants believe that the volatility indices work like a barometer. A high value translates into a greater degree of underlying index turbulence, while a low value of the index is consistent with greater stability.

AEX® Volatility, BEL 20® Volatility and CAC 40® Volatility indices follow the current VIX® methodology, a sentiment indicator for the US market based on the S&P500 index option prices listed on CBOE. This methodology is currently used as the basis for many such indices and has become a standard throughout the world.

The volatility indices, on a real time basis, capture implied volatility embedded in prices of out of the money index call and put options available on Liffe. They are calculated in a transparent manner, using only one external parameter, the risk free interest rate. The indices are quoted in terms of percentage points and translate the expected movement in the underlying index over the next 30-day period, on an annualized basis.

New indices

Volatility indices

Codes

ISIN	Full name	Short name	Mnemonic	Reuters	Bloomberg
QS0011052147	AEX Volatility	AEX Volatility	VAEX	.VAEX	VAEX Index <GO>
QS0011052154	BEL20 Volatility	BEL20 Volatility	VBEL	.VBEL	VBEL Index <GO>
QS0011052139	CAC 40 Volatility	CAC 40 Volatility	VCAC	.VCAC	VCAC Index <GO>
QS0011052162	FTSE 100 Volatility	FTSE 100 Volatility	VFTSE	.VFTSE