DEFINITION of 'S&P/ASX 200 VIX (A-VIX)'
A real-time index that reflects investor expectations about volatility over the next 30 days in the S&P/ASX 200, the Australian benchmark equity index. Commonly referred to as the ASX VIX or A-VIX, the S&P/ASX 200 VIX is used mainly as a barometer of investor sentiment and market expectations. As with other volatility indices, a relatively high level of the A-VIX implies expectations for greater market volatility and reflects uncertain investor sentiment, while a lower A-VIX level suggests lower volatility expectations and greater investor confidence.
BREAKING DOWN 'S&P/ASX 200 VIX (A-VIX)'
The S&P/ASX 200 VIX gauges expected near-term market volatility in the Australian market, using mid prices for put and call options on the index to calculate a weighted average of the implied volatility of these options. The volatility index uses two maturities for these options, with the nearest maturity having at least a week until expiry. The volatility of the options closest to maturity is interpolated with that of the options farthest from maturity to derive a 30-day indication of expected volatility in the equity benchmark.
Like other VIX indices, the A-VIX displays a strong negative correlation with the underlying S&P/ASX 200 index, enabling market participants to position their portfolios for anticipated changes in volatility, whether higher or lower. The launch of S&P/ASX 200 VIX futures in October 2013 has further enabled traders and investors to trade expected changes in Australian equity market volatility with ease in a single transaction.
The S&P/ASX 200 index covers approximately 80% of Australian equity market capitalization, and is home to global mining giants such as BHP Billiton and Rio Tinto, as well as large banks like Commonwealth Bank Australia and ANZ Banking Group. The index had a 45% weight in financial stocks and a 17% weight in material stocks as of October 2013. ASX itself is a vertically integrated exchange group that is among the world’s top 10 in terms of market capitalization.