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Replicating VXX Or VXZ

|Includes: TVIX, UVXY, VIXY, iPath S&P 500 VIX Short-Term Futures ETN (VXX), VXZ

With a little bit of elbow grease and some knowledge of programming in VBA or another language, you too can recreate the indices represented by VXX, VXZ, or maybe even your own volatility futures index.

The VIX Futures data is available historically going back to 2004 from the CBOE Futures Exchange. You just need to bring all of the data into a framework that is easily understood from a programmatic standpoint. You can download the data here or shoot me an email if you need assistance.

The second step is to dig into the prospectus for VXX and VXZ. There is actually quite a bit of information available, just jump to page 20 and 21 of the following pdf:

Ipath VIX Prospectus

If the math is scary, you probably do not want to tackle this project

Once you are able to meld the formula with the underlying VIX Futures data, you will be pleasantly surprised at how accurate your own estimate of the index is:

You will not be pleasantly surprised to know that if you invested $100 in VXX at the beginning of 2008, you would have ~$2.70 today…