FTSE launches UK and Italian volatility indices

FTSE Group has started publishing implied volatility indices for the UK and Italy, ETF Strategy reports. The FTSE Implied Volatility Index Series, or IVI, covers the FTSE 100 and the FTSE MIB at one-month, two-month, three-month and six-month horizons, and adds a one-year estimate for the UK benchmark. Each index is calculated once a day, at the close.

Peter Gunthorp, FTSE's managing director for research and analytics, says the series uses an improved algorithm that better captures the curvature of the index option price profile, ETF Strategy reports. Sudir Raju, managing director for ETP relationships in EMEA, notes that volatility indices have long served as underlyings for tradable products. The IVI series, he adds, broadens access for institutional investors, asset allocators and hedge funds.

The CBOE's VIX, introduced in 1993, remains the most prominent volatility barometer in the world, tracking near-term S&P 500 expectations. The Euro Stoxx 50 Volatility Index, launched by Stoxx in 2005, has held that role in Europe. The FTSE IVI series looks set to be read as a local version of these gauges for London and Milan.

The indices are built to serve as tracking benchmarks for future volatility ETFs. Raju's point about tradable underlyings points in that direction, though the ETF Strategy report names no funds tied to the series. Any fund would have to work around the once-a-day calculation, and the UK's one-year maturity gives the series a longer reference point than the shared horizons.