The New South-African Volatility Index : New SAVI

In 2007, the SAVI was launched as an index designed to measure the market's expectation of the 3-month market volatility. The SAVI soon became the benchmark for measuring the market sentiment, and in this light can be thought of as a market “fear” index.Two years later, in 2009 the Johannesburg Stock Exchange updated the SAVI to reflect a new way of measuring the expected volatility, one that is consistent with the theoretical framework, risk-management and the way traders trade options. The new SAVI is calculated as the at-the-money volatility adjusted for the volatility skew as determined by the actively traded options in the market.The aim of this note is to introduce the new SAVI calculation method, and briefly discuss the benefits of the new SAVI