Numerix CrossAsset Introduces Model Coverage to Support VIX Futures Instruments

Numerix, a provider of cross-asset analytics for derivatives valuations and risk management, released in the latest version of Numerix CrossAsset model coverage for Volatility Index (VIX) futures instruments to more accurately price volatility-linked derivatives. The growth of volatility as both an asset class and as a hedge has grown tremendously over the past several years, with trading volume of VIX futures setting a new annual record in 2011 with over 12 million contracts traded.

The VIX was first introduced in 1993 to track the implied volatility of certain stock market indices. In the years following, the methodology of calculating the VIX evolved to more accurately reflect how a financial practitioner could hedge such an index. In 2004, futures on the VIX became tradable and two years later VIX options were introduced, giving-rise to volatility as a full-fledged asset class.

Today, there are VIX-like indices measuring the implied volatility of various equity and commodity indices; and many exchange-traded instruments written on the VIX. Many diverse financial products also reference the VIX, including complex variable annuities that are widespread in the Insurance sector. Because of ongoing market volatility, it’s crucial that the models used to value these trades apply a complex stochastic process that takes in to account the price and volatility dynamics implied by the VIX.

“Volatility has become a full-blown asset class and managing its complexities has remained a challenge for customers over the past several years – not only from a hedging perspective but also from a modelling point-of-view,” said Steve O’Hanlon, president and chief operating officer (COO) of Numerix. “With the most extensive collection of models and methods, we’re proud of our industry leading position and the continuous innovation we bring to the marketplace. By incorporating further VIX coverage into our hybrid model and structuring framework, clients now have a broader range of capabilities for pricing and valuation services.”


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