Index Investment Strategy Market Attributes: Risk & Volatility Oct 2014

HEDGING COSTS

Implied Volatility Measures VIX 1m ± Realized (1Yr) VIX Futures Term Structure

CBOE Volatility Index® (VIX®) 17.87 4.18 11.06

CBOE Short-Term Volatility Index (VXST) 18.36 4.90 11.06

CBOE 3-month Volatility Index (VXV) 19.06 3.80 11.06

CBOE DJIA Volatility Index (VXD) 16.23 4.06 10.57

S&P/ASX 200 VIX (A-VIX) 14.27 -0.79 10.44

S&P/TSX 60 VIX (VIXC) 15.79 2.93 8.98

HSI Volatility Index (VHSI) 18.25 2.60 13.85

CBOE / CBOT 10Yr US Tsy (VXTYN) 6.00 1.57 4.49

CBOE Gold ETF Volatility Index (GVZ) 16.58 0.14 14

CBOE VIX of VIX (VVIX) 108.82 21.41 114.08

Investable Volatility Indices 1 Month YTD 1 Year Correlations (Month-end) 1 Year 3 Year 10 Year

S&P VIX Short-Term Futures Index 21.21% -17.83% -32.13% S&P 500 / S&P Europe 350 0.80 0.83 0.86

S&P VIX Mid-Term Futures Index 10.89% -12.08% -21.77% S&P 500 / 10 Year US Treasuries -0.12 -0.27 -0.27

S&P Dynamic VIX Index -0.52% -11.45% -15.65% S&P 500 / Commodities Correlation 0.57 0.63 0.48

S&P 500 Dynamic VEQTOR Index 0.38% 4.48% 8.38% S&P 500 / US Dollar Correlation -0.60 -0.64 -0.54

S&P Daily Inverse Short-Term VIX -21.12% -2.63% 15.60% Emerging / Developed Correlation 0.77 0.87 0.89

CBOE S&P 500 Buy-write Index -3.71% 3.38% 7.14% Credit Default Swap Indices Current

S&P 500 Stock Covered Call Index -3.24% 3.83% 8.68% S&P/ISDA U.S. 150 CDS 56.2 bps

VIX Futures Indices Roll Costs (Monthly) S&P/ISDA U.S. Investment Grade CDS 64.9 bps

Short-term futures -0.55% S&P/ISDA U.S. High Yield CDS 305.4 bps

Mid-term futures 1.29% S&P/ISDA Intl Dev Sovereign CDS 57.5 bps

+ 8.0 bps

+ 40.4 bps

+ 12.8 bps

Sources: S&P Dow Jones Indices LLC and/or its affiliates, NYSE, CBOE as of October 22, 2014. Volatility measures: respective VIX and changes in those levels September 22 - October 22, 2014. 1 year

realized volatility calculated according to previous 1 years daily returns, annualised. Investable Index performance based on total return. Correlations of monthly returns between total return indices, in USD.

Commodities are represented by the S&P GSCI Total Return index, US Treasuries by the S&P/BGCantor 7-10 year UST Index, US dollar represented by the DXY Index (Source: NYSE). All correlations provided to

month-end September 2014. VIX futures monthly roll costs are expressed as the weighted sum of the percentage difference in price between each future and the future next closer to expiry (or the spot price in

respect of the first future), expressed as a fraction of that futures price and weighted according to that future's weight in the either the S&P VIX Short-Term Futures Index, or the S&P VIX Mid-Term Futures Index, as

appropriate. Charts and graphs are provided for illustrative purposes. Past performance is no guarantee of future results. For more information, please visit our website at www.spdji.com

VOLATILITY AND CORRELATIONS

1m ±

+ 10.7 bps

COMMENTARY

• With five of the ten largest daily changes in the S&P 500® so far in 2014 occurring in the past few weeks, volatility returned to the

U.S. equity market with some gusto. Volatility measures across the globe are (nearly all) significantly up; Australia providing the

exception.

• The VIX® returned to levels not seen in several years, breaking through 30 intraday on October 15th before falling back to close

yesterday at 17.87. Both rise and fall in the VIX were precipitous and, despite returning to more normal levels, the market remains

skittish.

• It was, accordingly, a good month for those indices replicating long positions in VIX futures. The short-term index is up by over

21%; the mid-term index gained by 11%. The S&P 500 Dynamic VEQTOR Index, which takes positions in both VIX futures and in

equities, eked out a small gain; the S&P 500 lost over 3% during the same period.

• Markets were – broadly speaking – disappointed by the lack of outright bond purchases in the package of measures announced by

the ECB earlier in the month. The geopolitical environment continues to present material risks to the downside and markets have

reacted poorly to each reported case of Ebola in the developed world. However, following an extended bull market, simple fatigue

and animal spirits seem just as plausible explanations; the occasional sell-off is a natural part of equity behaviour; they have been

notably infrequent of late.

• U.S. High Yield CDS increased a little over 0.40% as corporate and sovereign spreads increased across the board, albeit from

initially very low levels; each remains well below the average established in the previous few years.

• The VIX futures curve has flattened. Unusually, the curve is showing backwardation in the front two months and a sharp increase

into the first few months of 2015, likely a consequence of the risk of U.S. interest rate increases early in the year.

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Market Attributes: Risk & Volatility Oct 2014

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