# Why is the VIX computed that way?

The VIX as a clear definition as defined in this paper I am interested to know why they came up with this formula.

I smell some reasonably complicated explanation here so any pointer to a paper would be fine with me. Thanks

• You should look at this question on Quora: quora.com/… Demeterfi et al. (1999) showed that the variance can be replicated by taking positions sensitive to the price, S, and the log price, ln(S), of the underlying asset. In this sense, recalling that a log contract can be replicated by taking long positions on call and put options, the CBOE computes VIX using out-of-the-money and at-the-money SP500 call and put options. – Julian Lopez Baasch Oct 18 '13 at 20:42
• Thqnks for the link I'll go for it. Not sure why I got this downvote though – statquant Oct 19 '13 at 7:38
• Oh... looks like some dude downvoted all my questions... nice ! – statquant Oct 19 '13 at 7:53