Important notice

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This announcement is made in relation to the set of new regulations for options listing on the Osaka Securities Exchange (OSE), and its impact on the computation and dissemination of the model-free volatility indices by the Center for the Study of Finance and Insurance (CSFI). There are important revisions, effective from July 16, 2013, of the respective minimum ticks for options with expirations over the nearest three months and more distant options. In association with the application of these new trading rules, there are large discrepancies between the measures of VXJ and CSFI-VXJ model-free volatility indices.

The asymmetric impact of the new rules on the respective levels of volatility indices may be explained by the contrasting computational methods. The VXJ index is calculated in strict accordance with the Chicago Board Options Exchange (CBOE) approach underlying the VIX index. In this respect, the implementation of the CBOE truncation rule may be rather restrictive in the presence of illiquid options, and conducive toward inconsistent applications of the interpolation process. Instead, the CSFI-VXJ index proposed by the CSFI-VXJ Research Group is founded on a new approach for approximating the expected quadratic variations from option prices (reference can be made to Fukasawa et al., International Journal of Theoretical and Applied Finance, 2011). This novel approach is shown to reduce approximation errors and the impact of liquidity problems, and it seems to be robust to the present changes in option trading regulation. Whereas careful tests and further adjustments in the calculation of the VXJ index may be required to adequately estimate volatility under the CBOE methodology, it is clear that the CSFI approach provides more accurate CSFI-VXJ measures without additional corrections.

In light of the potential effects of the new OSE trading rules on the levels of both model-free volatility benchmarks, the CSFI recommends the use of CSFI-VXJ index as a benchmark of future volatility in the Japanese market. It constitutes indeed a more reliable estimate that is also comparable to model-free implied volatility indices in other financial markets including the VIX index. Thus, starting from September 2, 2013, the VXJ index is renamed as VJO and this leaves room for the CSFI-VXJ benchmark to be simply referred to as the VXJ index. To avoid possible confusion in the dissemination of related information to the public, regular updates of volatility series will be confined to the new VXJ index. While the VJO index is discontinued as of December 31, 2013, its time series from 1998 to 2013 will remain available for download from the historical database. Thus, in addition to the weekly updates of the VXJ series, it is our pleasure to continue the regular updates of the historical database for the VXJ time-series, on monthly basis, from

VXJ(formerly labeled as MMDS-VXJ): VXJ-Guide
VXJ(formerly labeled as MMDS-VXJ): Technical Report (IJTAF(2011), errors corrected)
VJO(formerly labeled as VXJ): VJO-Guide (This document explains VJO with former label VXJ.)

VXJ Research Group Members :
Kazuhiko Nishina, Kosuke Oya, Nabil Maghrebi, Masato Ubukata, Masaaki Fukasawa, Kazutoshi Yamazaki, Isao Ishida, Yuta Kurose, Makoto Takahashi and Seiya Kuno
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