Asset refers to one of the selected components of the Volatility Index
Business Day for an asset refers to a day where all constituent Assets are trading and has a settlement Close Price
ATM or At the Money is a situation where an option’s strike price is identical to the current market price of the underlying security
Near the Money refers to an options contract whose strike price is close to the current market price of the corresponding underlying security
OTM or Out of the Money is used to describe an option contract that only contains extrinsic value and have no intrinsic value. An OTM Call option has a strike price that is higher than the market price of the underlying Asset. An OTM Put option has a strike price that is lower than the market price of the underlying Asset
Vol Indices also known as the V series Indices at AiLA are designed to represent the level of implied volatility in a particular commodity sector or across commodity sectors. These indices are composed of the implied volatility recorded at market close for the at the money option with a strike that is nearest to the settlement price of the underlying asset.
The implied volatility is calculated using a black 76 model by using the settlement premium of the at the money option for the relevant asset. In a basket we weight each of these assets by the Vega of the asset traded over the year. This means that we look at total volume traded for each asset and then calculate the total Vega for the asset and divide it by the Vega of that sector.
a. For each asset, the closest option contract with at least thirty calendar days to expiry is used
b. "Serial" contracts (contracts which expire into the next available future month), weekly expiry and other forms of early expiry contract are not considered due to poor liquidity
c. Contract selection is updated daily based on 2a)
Please refer to the Index Methodology Addendum document for further details about this Methodology.
For any queries regarding the Methodology or Data Inputs, please contact [email protected]