VHSI – the Volatility Benchmark for Hong Kong’s Stock Market
The HSI Volatility Index (VHSI) is an indicator of Hang Seng Index (HSI) volatility, and thus of the Hong Kong stock market. The VHSI is also seen as Hong Kong's premier barometer of investor sentiment.
The VHSI is a key measure of the market’s expectation of 30-day HSI volatility implicit in the prices of near-term and next-term HSI options traded on HKEx’s derivatives market. VHSI is an implied, or expected, volatility index and is quoted in percentage points.
The VHSI is owned by Hang Seng Indexes Ltd and compiled according to the CBOE’s Volatility Index, or VIX, methodology, with adaptation to the Hong Kong stock market’s characteristics. The VHSI was launched on 21 February 2011.
Benefits of VHSI as a Volatility Benchmark
Volatility indexes enhance the pricing efficiency of options markets because investors can use them to compare derivatives pricing and estimate the implied volatility in options pricing.
Relationship between VHSI and HSI
A volatility index is commonly viewed as a useful gauge for changes in investor sentiment. Some professional investors treat volatility as an alternative asset class for investing.
HKEx’s VHSI futures are an innovative tool for investors to manage volatility risk in Hong Kong’s stock market. VHSI Futures provide a pure play on implied volatility independent of the direction and level of stock prices.
• Trade the direction of implied volatility
• Trade implied volatility spreads
• Hedge volatility risk of HSI options
• Get volatility exposure for portfolio diversification
• Arbitrage between HSI options and VHSI futures
Advantages of Trading VHSI Futures
Cost-effective way to manage volatility risk
Cost effective and leveraged way to manage volatility risk in relation to HSI based equity derivatives products.
No requirement to delta hedge
Convenient and cost effective exposure to investors who can implement volatility trading strategies without the need to adjust positions for underlying market delta movements.
Continuous Liquidity by market makers
Market makers will provide continuous two-sided markets throughout the trading day to facilitate trading liquidity.
Reduced counterparty risk
Counterparty risk can be reduced with HKFE Clearing Corporation Limited, an HKEx subsidiary, acting as central counterparty to every trade.
HSI Volatility Index (the “Index”) is published by Hang Seng Indexes Company Limited (“HSIL”), which has contracted with Standard & Poor’s Financial Services LLC (“S&P”) to maintain and calculate the Index. "Standard & Poor's" and “S&P” are trademarks of S&P and have been licensed for use by HSIL. “VIX®” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and S&P has granted a license to HSIL, with permission from CBOE, to use such mark for purposes relating to the Index. The Index is not owned, sponsored, endorsed or promoted by S&P or CBOE and neither S&P nor CBOE makes any representation regarding the advisability of investing in products that are based on such Index or otherwise relying on such Index for any purposes and neither S&P, CBOE nor HSIL shall have any liability for any errors or omissions in the Index or any values thereof.