Intraday Rollover Timing for VIX Near- and Next-Term Options

Summary

The document raises a methodology question about selecting near- and next-term options when calculating intraday CBOE VIX values under the post-2014 maturity rules. It describes the eligible terms as more than 23 and fewer than 37 days to expiration. As time passes, the selected near-term contract can cross the lower maturity boundary, prompting a rollover in which the next-term contract becomes near-term.

The unresolved issue is when to apply that change in a one-minute calculation. One possibility is to hold the option set fixed for each calendar day and change it at midnight; another is to update it intraday when relevant weekly or three-weekly options expire. The document reports that the cited whitepaper and an academic study do not specify the timing clearly. It offers no answer, evidence comparing the two approaches, or implementation rule, so the precise rollover convention remains open.

Key ideas

• The described VIX calculation selects near- and next-term options within stated maturity bounds.
• A rollover occurs when the selected near-term option crosses the lower maturity threshold.
• For minute-level calculations, the document asks whether option selection should update daily or at intraday expirations.
• The cited materials are said not to clarify the timing, and the document provides no resolution.

Tags

# Option Selection (rollover rules) in calculating intraday CBOE VIX (post 2014)


# Option Selection (rollover rules) in calculating intraday CBOE VIX (post 2014)












In calculating the CBOE VIX (post 2014) one has to select near- and next-term options, which are defined as options with >23 days and <37 days to maturity. As time moves on, a currently selected near term option passes the 23 day threshold and the currently selected next-term option takes its place. This is called "rollover".

I am calculating the VIX on a 1-minute intraday frequency. My question is the following: when does the rollover take place:

a) Daily, e.g. for all considered minutes on tuesday, I use a fixed set of near- and next term options. Rollover then takes place at 00:00. b) Intradaily, e.g. at expiration of the weekly options at 15:00 or 8:30 for 3-weekly options. For minutes on tuesday after expiry, i have to select a new set of options.

The CBOE Whitepaper is not precise on this topic. Tzang, Hung, Wang & Shyu (2010) - Do liquidity and sampling methods matter in constructing volatility indices? Empirical evidence from Taiwan also do not specify.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.