PT - JOURNAL ARTICLE AU - Bani Arora TI - VIX Calculation Methodology: <em>Mystifying or Mathematically Convoluted?</em> AID - 10.3905/jot.2010.5.4.063 DP - 2010 Sep 30 TA - The Journal of Trading PG - 63--64 VI - 5 IP - 4 4099 - https://pm-research.com/content/5/4/63.short 4100 - https://pm-research.com/content/5/4/63.full AB - Wild speculation about the uncertain future of the economy drives market indices on a tempestuous, gyrating ride, and unreasoning fear captivates the market players, all of which is captured in real time on trading screens as the VIX. The VIX is a market mechanism that measures the 30-day forward implied volatility of the underlying index, the S&amp;P 500. To bracket a constant 30-day calendar period, an investor needs to include the front-month and adjacent expiry month options, both calls and puts, with a nonzero bid. Given that the option selection process varies in real time, and taking into consideration that volatility vacillates and fluctuates, the number of options and the strike price range spanned will continually change. The weighting process for the options is so employed to encompass a portfolio with a constant exposure to volatility. Being able to meaningfully interpret movements in the VIX and its reaction to market events can give investors an edge in managing the risk and profitability of their trading book and in designing portfolio strategies using VIX derivatives to capitalize on the dynamic and time-varying correlation of the VIX with its underlying S&amp;P 500 Index.TOPICS: Volatility measures, portfolio theory, options