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FRM Part I · FRM Exam Part I · Measuring Return, Volatility, and Correlation

The VIX index is quoted at 20.00. Assuming the standard interpretation of the index as an annualized, 30-day expected volatility in percentage points, and using a 252-trading-day convention, what is the approximate implied one-day standard deviation of S&P 500 returns?

Dividing the annualized 20% by the square root of 252 (about 15.87) gives roughly 1.26% per day. The VIX is an annualized volatility figure, so it must be scaled down by the square root of time.

  1. A0.079%
  2. B1.26%
  3. C0.794%Correct
  4. D0.056%

Explanation

Daily vol = 20% / sqrt(252) = 20 / 15.875 = 1.26%. Check: 1.26% x 15.875 = 20%. Hence the daily figure is about 1.26%, not the options below it. Re-evaluating: the correct value is 1.26%.

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