System and method for providing a volatility arbitrage index

1. A system, comprising:

a memory operable to store a first closing value of an index for a first day, wherein the index is based at least in part on a cash account and a variance future;

a processor communicatively coupled to the memory and operable to:

determine a first settlement value of a variance future for the first day;

determine a second settlement value of the variance future for a second day;

determine an increase of cash in the cash account from the first day to the second day, wherein the determination is based at least in part on an interest rate;

determine a second closing value of the index for the second day, wherein the determination is based at least in part on:

the determined increase of cash in the cash account;

the first settlement value; and

the second settlement value;

and

store the second closing value in the memory.

2. The system of claim 1 , wherein the index emulates a collateralized short position in the variance future.

3. The system of claim 1 , wherein:

the processor is further operable to determine a return associated with a variance future from the first day to the second day;

the determined return is based at least in part on:

the first settlement value;

the second settlement value; and

a volatility threshold associated with the variance future;

and

the determination of the second closing value is based at least in part on the determined return.

4. The system of claim 3 , wherein the volatility threshold is based at least in part on one or more historical values of realized volatility of the variance future.

5. The system of claim 1 , wherein, in conjunction with a final settlement day of the variance future, the processor is further operable to:

determine a closing value of the index; and

adjust the cash in the cash account to be substantially equal to the determined closing value.

6. The system of claim 1 , wherein the variance future represents a CBOE S&P 500 Three-Month Variance Future.

7. The system of claim 1 , wherein:

the cash account is held by a publicly traded fund that tracks the target index;

the fund maintains a short position in one or more variance futures; and

in conjunction with a final settlement day of the variance future, the processor is further operable to reset the cash account to be equal to a closing value of target index on the final settlement day.

8. The system of claim 1 , wherein the interest rate is a BBA Overnight LIBOR rate.

9. The system of claim 1 , wherein:

the processor is further operable to cause one or more client devices to display the second closing value; and

at least one client device is operable to submit a trading order associated with the index, wherein the trading order is based at least in part on the second closing value.

10. A method, comprising:

storing a first closing value of an index for a first day, wherein the index is based at least in part on a cash account and a variance future;

determining a first settlement value of a variance future for the first day;

determining a second settlement value of the variance future for a second day;

determining an increase of cash in the cash account from the first day to the second day, wherein the determination is based at least in part on an interest rate;

determining, with a processor, a second closing value of the index for the second day, wherein the determination is based at least in part on:

the determined increase of cash in the cash account;

the first settlement value; and

the second settlement value;

and

storing the second closing value in memory.

11. The method of claim 10 , wherein the index emulates a collateralized short position in the variance future.

12. The method of claim 10 , further comprising determining a return associated with a variance future from the first day to the second day, wherein:

the determined return is based at least in part on:

the first settlement value;

the second settlement value; and

a volatility threshold associated with the variance future;

and

the determination of the second closing value is based at least in part on the determined return.

13. The method of claim 12 , wherein the volatility threshold is based at least in part on one or more historical values of realized volatility of the variance future.

14. The method of claim 10 , further comprising, in conjunction with a final settlement day of the variance future:

determining a closing value of the index; and

adjusting the cash in the cash account to be substantially equal to the determined closing value.

15. The method of claim 10 , wherein the variance future represents a CBOE S&P 500 Three-Month Variance Future.

16. The method of claim 10 , wherein:

the cash account is held by a publicly traded fund that tracks the target index; and

the fund maintains a short position in one or more variance futures;

and further comprising:

in conjunction with a final settlement day of the variance future, resetting the cash account to be equal to a closing value of target index on the final settlement day.

17. The method of claim 10 , wherein the interest rate is a BBA Overnight LIBOR rate.

18. The method of claim 10 , further comprising:

causing one or more client devices to display the second closing value; and

executing a trade associated with the index, wherein the trade is executed based at least in part on the second closing value.