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Volatility indices seek a market

A new family of volatility indices that will track the Dax, Stoxx, and SMI equity indices will launch this September.

The new indices, the VDax-New, VStoxx and VSMI, are based on a methodology jointly developed by Deutsche Börse and Goldman Sachs that takes into account all relevant option prices on the Eurex derivatives exchange, including all but the most out-of-the-money options.

Deutsche Börse, Stoxx and the Swiss Exchange (SWX), which run the Dax, Stoxx and SMI indices, will also launch futures contracts on the new volatility indices.

Although the new indices, calculated using a methodology similar to the Chicago Board Options Exchange's Vix volatility index, are keenly awaited and widely seen as an improvement on the old ones, the success of the futures contracts is far from certain.

This is Deutsche Börse's second attempt at launching a futures contract on a Dax volatility index. The first, seven years ago, was a world first that failed to catch on. Interest in volatility as an asset class has grown rapidly since then, but similar products recently launched in the US are struggling to attract volume.

The Vix futures contracts, based on the S&P500, launched by the CBOE in March 2004, have failed to attract significant volume, as has a similar variance futures contract launched in June 2004.

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