S&P 500 Dynamic VIX Futures Index Methodology

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1 S&P 500 Dynamic VIX Fuures Index Mehodology S&P Dow Jones Indices: Index Mehodology May 2017

2 Table of Conens Inroducion 2 Highlighs 2 Family 2 Index Consrucion 3 Consiuens 3 Allocaions 3 Excess Reurn (ER) Calculaions 4 Toal Reurn (TR) Calculaions 5 Base Dae 5 Index Governance 6 Index Commiee 6 Index Policy 7 Announcemens 7 Holiday Schedule 7 Index Disseminaion 8 Tickers 8 FTP 8 Web sie 8 S&P Dow Jones Indices Conac Informaion 9 Index Managemen 9 Produc Managemen 9 Media Relaions 9 Clien Services 9 Disclaimer 10 S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 1

3 Inroducion The S&P 500 Dynamic VIX Fuures Index series dynamically allocaes beween he shor-erm and miderm VIX fuures indices excess reurn o provide cos efficien exposure o forward implied volailiy. The following indices are included in he series: The S&P 500 VIX Shor-Term Fuures Index Excess Reurn The S&P 500 VIX Mid-Term Fuures Index Excess Reurn Highlighs Implied equiy volailiy has hisorically had a srongly negaive correlaion o equiy marke reurns and is considered a useful ool o hedge agains he poenial downside of he broad equiy marke. The S&P 500 VIX Fuures Indices model he oucome of holding long posiions in VIX fuures conracs ha mainain consan mauriy. Exchange raded producs based on hese indices provide convenien access o implied volailiy. For more informaion on he S&P 500 VIX Fuures Indices, please refer o S&P 500 VIX Fuures Index mehodology documen locaed on our Web sie, The S&P 500 Dynamic VIX Fuures Index moniors he seepness of he implied volailiy curve o provide informaion abou fuure expecaions of marke volailiy and he expeced roll cos of VIX fuures invesmens. The index dynamically allocaes beween posiions across he VIX fuures curve aiming o lower he holding cos of invesmens linked o forward implied volailiy. The allocaions are evaluaed daily, hough changes in allocaion may occur less frequenly. Family The S&P 500 Dynamic VIX Fuures Index series belongs o he family of S&P 500 volailiy linked indices which includes, among ohers, VIX 1 (Chicago Board Opions Exchange Volailiy Index), he S&P 500 Volailiy Arbirage Index and he S&P 500 VIX Fuures Index Series. This mehodology was creaed by S&P Dow Jones Indices o achieve he aforemenioned objecive of measuring he underlying ineres of each index governed by his mehodology documen. Any changes o or deviaions from his mehodology are made in he sole judgmen and discreion of S&P Dow Jones Indices so ha he index coninues o achieve is objecive. 1 VIX is a regisered rademark of Chicago Board Opions Exchange, Incorporaed. The VIX mehodology is he propery of he Chicago Board Opions Exchange ("CBOE"). S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 2

4 Index Consrucion Consiuens The S&P 500 Dynamic VIX Fuures Index is comprised of wo componens: 1. Shor-erm volailiy, represened by he S&P 500 VIX Shor-Term Fuures Index Excess Reurn 2. Mid-erm volailiy, represened by he S&P 500 VIX Mid-Term Fuures Index Excess Reurn Allocaions On any business day,, he S&P 500 Dynamic VIX Fuures Index allocaes beween he shor-erm and mid-erm volailiy based on of he implied volailiy erm srucure variable (IVTS). While he allocaions are reviewed daily, hey may change on a less frequen basis. The arge allocaions o he shor-erm volailiy (TS) and he mid-erm volailiy (TM) are deermined by he implied volailiy erm srucure (IVTS) and implied volailiy rend (IVT) as follows: Implied Volailiy Term Srucure IVTS ) ( 1 Targe Shor-Term Volailiy Allocaion TS ) ( Targe Mid-Term Volailiy Allocaion TM ) ( Less han 90% % IVTS -1 < 100% % IVTS -1 < 105% % IVTS % More han 115% The S&P 500 Dynamic VIX Fuures Index limis he size of changes o is daily allocaion rebalancing. The Shor-Term and Mid-Term Volailiy Allocaions (S and M, respecively) are deermined as follows: S M S 1 2if 2S 1 = TS = min( S , TS ) 2if 2S max( S , TS ) 2if 2S M 1 2if 2M 1 = TM = min( M , TM ) 2if 2M max( M , TM 1 1 ) 2if 2M < TS > TS 1 1 < TM > TM (1) S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 3

5 Evaluaing implied volailiy erm srucure The implied volailiy erm srucure measures he slope of he VIX fuures curve. Le IVTS denoe he implied volailiy erm srucure, where: IVTS 1 = VIX VXV 1 1 (2) where: VIX -1 and VXV -1 refer o he CBOE Volailiy Index (VIX) and he CBOE S&P Monh Volailiy Index (VXV), respecively. Excess Reurn (ER) Calculaions On any business day,, he excess reurn index levels are calculaed. The excess reurn indices assume no accruals from cash. The S&P 500 Dynamic VIX Fuures Index excess reurn is calculaed as follows: = IndexER * ( + S SEDR M MEDR ) (3) IndexER * where: * r + 1 IndexER -1 = The S&P 500 Dynamic VIX Fuures Index Excess Reurn on he preceding business day, -1 S 1 = Allocaion o he S&P 500 VIX Shor-Term Fuures Index on he prior business day, -1 SEDR = Shor-Term Volailiy Daily Excess Reurn, as deermined by he following formula: SPVXSP SEDR = 1 (4) SPVXSP where: 1 SPVXSP = The S&P 500 VIX Shor-Term Fuures Excess Reurn Index closing level on he curren business day,. M 1 = Allocaion o he S&P 500 VIX Mid-Term Fuures Index on he prior business day, -1 MEDR = Mid-Term Volailiy Daily Excess Reurn, as deermined by he following formula: SPVXMP MEDR = 1 (5) SPVXMP where: 1 SPVXMP = The S&P 500 VIX Mid-Term Fuures Excess Reurn Index closing level on he curren business day,. S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 4

6 Toal Reurn (TR) Calculaions A oal reurn index is calculaed for he S&P 500 Dynamic VIX Fuures Index, which includes ineres based on he hree-monh U.S. Treasury rae. ( + S * SEDR + M MEDR TBR ) IndexTR + Base Dae where: = IndexTR 1 r * (6) IndexTR -1 = The S&P 500 Dynamic VIX Fuures Index Toal Reurn on he preceding business day, -1 S 1 = Allocaion o he S&P 500 VIX Shor-Term Fuures Index on he prior business day, -1 SEDR = Shor-Term Volailiy Daily Excess Reurn, as deermined by formula (4) M 1 = Allocaion o he S&P 500 VIX Mid-Term Fuures Index on he prior business day, - 1 MEDR = Mid-Term Volailiy Daily Excess Reurn, as deermined by formula (5) TBR = Treasury Bill Reurn, as deermined by he following formula: 1 = 91 1 * TBAR Dela 91 1 TBR (7) Dela = he number of calendar days beween he curren and previous business days. TBAR -1 = he mos recen weekly high discoun rae for 91-day US Treasury bills effecive on he preceding business day. Generally he raes are announced by he US Treasury on each Monday. On Mondays ha are bank holidays, Friday s raes will apply. The base dae for he indices is December 20, 2005 and he base value is 1,000 for boh he excess and oal reurn indices. S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 5

7 Index Governance Index Commiee The Commodiies Index Commiee mainains he indices. All members of he Commiee are full-ime professionals a S&P Dow Jones Indices. The Commiee mees quarerly. A each meeing, he Commiee reviews any significan marke evens. In addiion, he Commiee may revise index policy for iming of rebalancings or oher maers. S&P Dow Jones Indices considers informaion abou changes o is indices and relaed maers o be poenially marke moving and maerial. Therefore, all Index Commiee discussions are confidenial. For informaion on Qualiy Assurance and Inernal Reviews of Mehodology, please refer o S&P Dow Jones Indices Commodiies Indices Policies & Pracices documen locaed on our Web sie, S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 6

8 Index Policy Announcemens Announcemens of he daily index values are made afer he close of he CBOE Fuures Exchange each day. Holiday Schedule The index is calculaed daily when he S&P 500 VIX Fuures Index Series is calculaed. For informaion on Calculaions and Pricing Disrupions, Exper Judgmen, Daa Hierarchy, Unexpeced Exchange Closures and Error Correcions, please refer o S&P Dow Jones Indices Commodiies Indices Policies & Pracices documen locaed on our Web sie, S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 7

9 Index Disseminaion Index levels are available hrough S&P Dow Jones Indices Web sie a major quoe vendors (see codes below), numerous invesmen-oriened Web sies, and various prin and elecronic media. Tickers Index S&P 500 Dynamic VIX Fuures Index ER S&P 500 Dynamic VIX Fuures Index TR S&P 500 Dynamic VIX Fuures Index ER (Official Close) S&P 500 Dynamic VIX Fuures Index TR (Official Close) Bloomberg SPDVIXE SPDVIXT SPDVIXP SPDVIXTR FTP Index reurns and daa are available via FTP subscripion. For produc informaion, please conac S&P Dow Jones Indices, Web sie For furher informaion, please refer o S&P Dow Jones Indices Web sie a S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 8

10 S&P Dow Jones Indices Conac Informaion Index Managemen David M. Blizer, Ph.D. Managing Direcor & Chairman of he Index Commiee Produc Managemen Vini Srivasava Managing Direcor Media Relaions Soogyung Jordan Communicaions Clien Services S&P Dow Jones Indices: S&P 500 Dynamic VIX Fuures Index Mehodology 9

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