The Australian Securities Exchange (ASX) has started trading a new exchange-traded product, S&P/ASX 200 VIX futures. This will allow trading, hedging and arbitrage of anticipated volatility in the Australian equity market.
The contract will allow market participants to trade anticipated changes in volatility in one transaction, using a method separate from factors that complicate volatility strategies, such as expiring options and price movements in the underlying market.
The S&P/ASX 200 VIX index (A-VIX), Australia’s equity market volatility benchmark, will be the underlying index for the new futures contract. The A-VIX is based on the implied volatility of put and call options over the Australian equity benchmark index, the S&P/ASX 200.
The contract will allow users to isolate local equity market volatility and avoid the timing, currency and matching risk that arises when using volatility products based on offshore indices. Market makers will provide liquidity for the contract, which will be listed alongside the current ASX SPI 200 contract.
The exchange said that it would enable investors to diversify their portfolios by adding volatility as an asset class, with a low or negative correlation to other asset classes including the AUD/USD exchange rate.
ASX has become a member of the VIX Network, a global network of exchanges with agreements regarding the use of the CBOE Volatility Index (VIX) methodology owned by the Chicago Board Options Exchange.