Futures Trading Price and Size Translations

The price and size translations functionality of the Variance Calculator provides informational tools to users of the VA Futures product. Users will see prices quoted on the screen that represent intraday prices in variance units. Users that are accustomed to thinking in volatility points and to using an end-of-day restated OTC-style product may use the Variance Calculator functionality for translating between the two worlds.

Consider a displayed futures price F^* in variance units. To translate the displayed futures price in variance units into an equivalent price expressed in volatility points Equation 3 above is used where the Trade Clearing Price is the futures price in variance units and the equivalent price expressed in volatility points is σ_*. The summation of the historical day variance values in Equation 3 includes the current day variance, which is not available until the observation of the current day end of day closing value of the S&P 500 Index. To facilitate translating variance unit to volatility unit price, the day variance associated with the current day is separated into a distinct term, which uses a current day end of day index observation value P^*_n (which is not available until the end of the trading day):

The following price translation functions use Equation 5 above to map prices between variance and volatility units and to determine order sizes in vega units.