Time and Volume Weighted Price Index

/

The value of a derivative depends on the price of its underlying. ProDerivatives publishes prices of underlyings in the form of a price index that is updated daily. The index is calculated from market prices and typically taken from actual trades reported by supported trading venues. Rather than simply using the last trade of the trading cycle, ProDerivatives samples trades over the complete cycle (i.e. over one day) and weighs each price by the relative point in time when the trade occurred and the volume of the trade. This method is called time and volume weighted index pricing.

Screen Shot 2019-06-05 at 2.53.00 PM.png

Advantages:

  • Every trade of the trading cycle contributes to the index making it a more accurate representation of the trading cycle.

  • Index value does not take on the extreme high or low price observed during the trading cycle.

  • It is more difficult to game the index by placing untypical trades at the end of the trading cycle.