The VIX® returned to levels not seen in several years, breaking through 30 intraday on October 15th before falling back to close yesterday at 17.87. Both rise and fall in the VIX were precipitous; the market remains skittish.

1. Index Investment Strategy
Market Attributes: Risk & Volatility Oct 2014
HEDGING COSTS
Implied Volatility Measures
VIX
1m ±
Realized (1Yr)
VIX Futures Term Structure
CBOE Volatility Index® (VIX®)
17.87
4.18
11.06
CBOE Short-Term Volatility Index (VXST)
18.36
4.90
11.06
CBOE 3-month Volatility Index (VXV)
19.06
3.80
11.06
CBOE DJIA Volatility Index (VXD)
16.23
4.06
10.57
S&P/ASX 200 VIX (A-VIX)
14.27
-0.79
10.44
S&P/TSX 60 VIX (VIXC)
15.79
2.93
8.98
HSI Volatility Index (VHSI)
18.25
2.60
13.85
CBOE / CBOT 10Yr US Tsy (VXTYN)
6.00
1.57
4.49
CBOE Gold ETF Volatility Index (GVZ)
16.58
0.14
14
CBOE VIX of VIX (VVIX)
108.82
21.41
114.08
Investable Volatility Indices
1 Month
YTD
1 Year
Correlations (Month-end)
1 Year
3 Year
10 Year
S&P VIX Short-Term Futures Index
21.21%
-17.83%
-32.13%
S&P 500 / S&P Europe 350
0.80
0.83
0.86
S&P VIX Mid-Term Futures Index
10.89%
-12.08%
-21.77%
S&P 500 / 10 Year US Treasuries
-0.12
-0.27
-0.27
S&P Dynamic VIX Index
-0.52%
-11.45%
-15.65%
S&P 500 / Commodities Correlation
0.57
0.63
0.48
S&P 500 Dynamic VEQTOR Index
0.38%
4.48%
8.38%
S&P 500 / US Dollar Correlation
-0.60
-0.64
-0.54
S&P Daily Inverse Short-Term VIX
-21.12%
-2.63%
15.60%
Emerging / Developed Correlation
0.77
0.87
0.89
CBOE S&P 500 Buy-write Index
-3.71%
3.38%
7.14%
Credit Default Swap Indices
Current
S&P 500 Stock Covered Call Index
-3.24%
3.83%
8.68%
S&P/ISDA U.S. 150 CDS
56.2 bps
VIX Futures Indices Roll Costs (Monthly)
S&P/ISDA U.S. Investment Grade CDS
64.9 bps
Short-term futures
-0.55%
S&P/ISDA U.S. High Yield CDS
305.4 bps
Mid-term futures
1.29%
S&P/ISDA Intl Dev Sovereign CDS
57.5 bps
+ 8.0 bps
+ 40.4 bps
+ 12.8 bps
Sources: S&P Dow Jones Indices LLC and/or its affiliates, NYSE, CBOE as of October 22, 2014. Volatility measures: respective VIX and changes in those levels September 22 - October 22, 2014. 1 year realized volatility calculated according to previous 1 years daily returns, annualised. Investable Index performance based on total return. Correlations of monthly returns between total return indices, in USD. Commodities are represented by the S&P GSCI Total Return index, US Treasuries by the S&P/BGCantor 7-10 year UST Index, US dollar represented by the DXY Index (Source: NYSE). All correlations provided to month-end September 2014. VIX futures monthly roll costs are expressed as the weighted sum of the percentage difference in price between each future and the future next closer to expiry (or the spot price in respect of the first future), expressed as a fraction of that futures price and weighted according to that future's weight in the either the S&P VIX Short-Term Futures Index, or the S&P VIX Mid-Term Futures Index, as appropriate. Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results. For more information, please visit our website at www.spdji.com
VOLATILITY AND CORRELATIONS
1m ±
+ 10.7 bps
COMMENTARY
•With five of the ten largest daily changes in the S&P 500® so far in 2014 occurring in the past few weeks, volatility returned to the U.S. equity market with some gusto. Volatility measures across the globe are (nearly all) significantly up; Australia providing the exception.
•The VIX® returned to levels not seen in several years, breaking through 30 intraday on October 15th before falling back to close yesterday at 17.87. Both rise and fall in the VIX were precipitous and, despite returning to more normal levels, the market remains skittish.
•It was, accordingly, a good month for those indices replicating long positions in VIX futures. The short-term index is up by over 21%; the mid-term index gained by 11%. The S&P 500 Dynamic VEQTOR Index, which takes positions in both VIX futures and in equities, eked out a small gain; the S&P 500 lost over 3% during the same period.
•Markets were – broadly speaking – disappointed by the lack of outright bond purchases in the package of measures announced by the ECB earlier in the month. The geopolitical environment continues to present material risks to the downside and markets have reacted poorly to each reported case of Ebola in the developed world. However, following an extended bull market, simple fatigue and animal spirits seem just as plausible explanations; the occasional sell-off is a natural part of equity behaviour; they have been notably infrequent of late.
•U.S. High Yield CDS increased a little over 0.40% as corporate and sovereign spreads increased across the board, albeit from initially very low levels; each remains well below the average established in the previous few years.
•The VIX futures curve has flattened. Unusually, the curve is showing backwardation in the front two months and a sharp increase into the first few months of 2015, likely a consequence of the risk of U.S. interest rate increases early in the year.
17.0
17.5
18.0
18.5
19.0
19.5
20.0
Spot
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-
15
Jun-15

2. Volatility Oct 2014
About the VIX® Network
The VIX Network is an association of exchanges and index providers dedicated to establishing standards that help investors understand, measure, and manage volatility. The Network’s members have obtained, from Chicago Board Options Exchange (“CBOE”) and its partner S&P Dow Jones Indices (“S&P DJI”), the rights to use the methodology of the CBOE Volatility Index (“VIX”) to calculate their own volatility indices. In addition to CBOE and S&P DJI, members include: Australian Securities Exchange, CME Group, Deutsche Borse AG, Hang Seng Indexes in Hong Kong, National Stock Exchange of India, LIFFE, Taiwan Futures Exchange, and the TMX Group in Canada.
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