Mastering Python for Finance - Second Edition

Calculating the forward SPX Index level

For each contract month, the forward SPX level F is given as follows:

Here, the strike price is chosen where the absolute difference between the call and put prices is the minimum. Note that options with zero bid prices are not taken into account for the VIX Index calculation. This suggests that as volatility of the SPX and options changes, the bid quotes may become zero, and the number of options used in calculation of the VIX Index may vary at any minute!

We can represent the forward index level calculation with the determine_forward_level() function, as shown in the following code:

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