- What is the S&P/B3 Ibovespa VIX? The S&P/B3 Ibovespa VIX seeks to measure the 30-day implied volatility in the Brazilian stock market. It is a real-time index that reflects investor sentiment about the expected volatility in the Brazilian benchmark equity index, the Bovespa index (Ibovespa B3). It is the first implied volatility index designed for the domestic market and uses the same methodology framework as the widely followed Cboe Volatility Index (VIX®), which measures near-term volatility implied by S&P 500® options prices.
- How is the index calculated? The S&P/B3 Ibovespa VIX is calculated throughout each trading day by averaging the weighted prices of a specific group of Ibovespa index options. The index generally uses put and call options in the two nearest-term expiration months in order to bracket a 30-day calendar period. Variances at these two different expirations are derived and are interpolated to calculate a constant 30-day variance. VIX is derived by transforming this variance into a standard deviation and multiplying by 100. Please see the methodology document for complete details regarding the calculation methodology.
- How does VIX indicate market sentiment? Implied volatility typically increases when markets are turbulent and the economy is faltering. In contrast, if stock prices are rising and no dramatic changes seem probable in the near-term, VIX tends to fall or remain steady at the lower end of its range. Since VIX reaches its highest levels when the stock market is most unsettled, the media tend to refer to VIX as a “fear gauge.”
- What is the difference between implied and realized volatility? Implied volatility refers to the market’s assessment of future volatility based on options prices, whereas realized volatility measures historical volatility of returns. VIX measures implied volatility, specifically 30 days in the future.
- What does a VIX level signify? The index level represents an annualized volatility statistic. For example, an index level of 20 corresponds to an expectation for a standard deviation of 20% in Ibovespa returns over the next 30 days. VIX also projects the probable range of movement in the equity market above and below its current level, over the next 30 days. When implied volatility is high, the VIX level is high and the range of values is broad. When implied volatility is low, the VIX level is low and the range is narrow. Mathematically, a relatively low VIX level of 10 implies an expected range of the Ibovespa of plus/minus 2.9%. A relatively high VIX of 35 implies an expected range of the Ibovespa of plus/minus 10.1%.
- What is the relationship between the S&P/B3 Ibovespa VIX and the Ibovespa? Volatility indices and their associated equity indices are typically negatively correlated—meaning they tend to move in opposite directions. Based on back-tested data from May 6, 2021, we’ve observed a negative correlation between the S&P/B3 Ibovespa VIX and the Ibovespa of -0.59.
