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CFE modifies pricing for S&P 500 Variance futures contract


CBOE Futures Exchange will revise the pricing method for its S&P 500 Variance (VA) futures contract, which began trading on CFE in December 2012, on 24 June. 

The change involves the timing of when CFE converts volatility points to futures prices so that the prices of VA futures are more directly comparable to prices in the over-the-counter (OTC) variance swap market.
The conversion, which previously was calculated during the trading session, now will occur after the close of trading in Variance futures. This change allows CFE to include the current day’s closing value for the S&P 500 in the conversion calculation.
"Working with market participants to grow variance trading and the volatility space is a very high priority for CFE this year and beyond," says Jim Lubin, CFE senior managing director. "Given the feedback we’ve received from customers, we think they will embrace this contract change, which now more closely aligns our S&P 500 Variance futures contract with OTC variance swaps. In addition, VA futures continue to offer customers the benefits inherent in exchange-traded products."
Variance futures measure the difference between the expected and actual variance of an underlying instrument over a fixed time period.
The VA futures contract is aimed at both existing OTC users and customers who have not traditionally participated in the OTC variance swap market – both who increasingly may be looking to use exchange-traded products to mitigate counterparty risk.

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