In 1993, the year the first U.S. ETF was launched, there was also another monumental introduction.
Robert Whaley was an established expert in derivative contract valuation and risk management. In 1993, Whaley developed the CBOE Market Volatility Index “VIX” for the Chicago Board Options Exchange. He went on to create the NASDAQ Market Volatility Index “VXN” in 2000 and the BuyWrite Monthly Index “BXM” in 2001. He also co-developed the NASDAQ OMX Alpha Indexes.
Whaley is not only the director of Financial Markets Research Center at Vanderbilt University, but also a partner in a new ETF company, AccuShares.
AccuShares filed a registration statement with the Securities and Exchange Commission to issue shares of 7 exchange traded funds (“ETFs”). The first ETF expected to be offered, the AccuShares Spot CBOE® VIX Fund, is designed to provide exposure to the CBOE Volatility Index.
Today, several ETFs seek to track performance of the VIX. The formula uses a “kernel-smoothed estimator that takes as inputs the current market prices for all out-of-the-money calls and puts for the front month and second month expirations. The goal is to estimate the implied volatility of the S&P 500 index over the next 30 days.”
Although Whaley couldn’t comment on the newly registered ETFs, he did offer up this regarding the current VIX related ETFs and ETNs:
“There’s room for improvement. Most people who use them don’t understand that when they buy them, they aren’t really getting a position in the VIX. It’s a bit disheartening. They are funds pegged to the vix s&p 500 indices and lose money because of contango in the futures market. That’s kind of scary,” Whaley said in an interview with ETF Trends.