Exhibit 14: Although a portfolio comprised of DJIA and VXD would have experienced lower returns with the addition of greater amounts of VXD, the risk/return trade-off was improved by the addition of VXD in amounts up to between 15% and 20%, but begins to decline at VXD in amounts of 20% and larger.

Exhibit 15: Can be compared with Exhibit 10. Please note that this exhibit refers to the VXD spot index, and that VXD futures do not perform exactly as the VXD spot index does.

Gaining Exposure To The VXD Through Futures

Adding a 5% VXD allocation to the C-3 portfolio in Exhibit 10 (E-1 in Exhibit 15) showed a Sharpe ratio increase from 0.35 to 0.42. The returns of this new portfolio were slightly lower, but the standard deviation was significantly lower.

Contrarily, the impact of adding 5% VXD to the D-2 portfolio in Exhibit 10 was not positive. These numbers indicate that a small allocation to the VXD might have improved portfolios with a large allocation to equities, but might not have been as effective for portfolios with allocations to bonds and cash.

Volatility as a tool for asset allocation is a concept worth considering because of the potential it has to improve the risk-adjusted returns of diversified portfolios. Gaining exposure to volatility can be achieved through futures contracts.

Futures on the CBOE DJIA Volatility Index (VXD) began trading on the CBOE Futures Exchange on April 25, 2005.

Summary

The Fund Evaluation Group study uncovered the following key findings in its study of 109 months of performance of various indexes: Over the course of the study, the BXD exhibited similar performance to the stock indexes while experiencing less volatility. BXD returns were superior to bonds and cash but were more volatile.

Incorporating an allocation to the BXD in either an aggressive or conservative portfolio could have improved the risk-adjusted returns of that portfolio (Sharpe ratio).

Adding an allocation to volatility through the VXD could have reduced the volatility of an aggressive portfolio without materially affecting returns.

References:

Callan Associates, Inc. (2006) "An Historical Evaluation of the CBOE S&P 500 BuyWrite Index Strategy," (available at www.cboe.com/BXM), p. 3.

Feldman, Barry and Dhruv Roy (Summer 2005), "Passive Options-Based Investment Strategies: The Case of the CBOE S&P 500 Stocks BuyWrite Index."

The Journal of Investing, pp. 66–83.

Ibbotson Associates, Inc. (2006), 2006 Yearbook, Market Results for 1926-2004, p. 33.

Richard A. DeFusco, CFA^®, Dennis W. McLeavey, CFA^®, Jerald E. Pinto, CFA^®, David E. Runkle, CFA^®, Quantitative Methods for Investment Analysis, Association for Investment Management and Research^®, Charlottesville, Va., 2001, pp. 125 and 133.

Whaley, Robert (Winter 2002), "Risk and Return of the CBOE BuyWrite Monthly Index," The Journal of Derivatives, pp. 35–42.

Disclaimers and Notices

Nothing in this article should be deemed as investment advice or a recommendation by Fund Evaluation Group, LLC ("FEG") to any single investor or group of investors and no investor should rely upon or make an investment decision based on the contents of this article. This article was prepared by FEG at the request of Chicago Board Options Exchange, Incorporated ("CBOE") in order to describe the basic investment principles and implications of investing in a CBOE DJIA.

BuyWrite Index ("BXD") Strategy. Readers should understand that FEG was compensated by CBOE for the preparation of this article, which was not intended to be used in connection with the offering for purchase or sale of any security. FEG makes no representation as to the appropriateness of these strategies for any investor. Readers should consult with a recognized and competent investment advisor who is familiar with your particular financial circumstances. Neither FEG nor CBOE assumes any responsibility for any losses you might suffer by reason of adopting any investment strategy discussed in this article. The CBOE DJIA BuyWrite Index is designed to represent a proposed hypothetical BuyWrite strategy. Investors attempting to replicate the index should discuss with their brokers and investment advisors possible timing and liquidity issues. Past performance does not guarantee future results. "Dow Jones", "The Dow", "DJIA" and "Dow Jones Industrial Average" are trademarks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by CBOE. CBOE's options based on Dow Jones indexes and financial products based on the CBOE DJIA BuyWrite Index are not sponsored, endorsed, marketed or promoted by Dow Jones and Dow Jones makes no representations regarding the advisability of investing in such products.

CBOE calculates and disseminates the BXD and VXD Indexes. The methodology of the BXD and VXD Indexes is owned by CBOE and may be covered by one or more patents or pending patent applications. CBOE^® and Chicago Board Options Exchange^® are registered trademarks and BXD and VXD are service marks of CBOE. All other trademarks and service marks are the property of their respective owners.

The booklet entitled "Characteristics and Risks of Standard Options," the BXD methodology, and supporting documentation for options data is available by calling 1-888-OPTIONS, or by visiting www. cboe.com/BXD. The CBOE DJIA BuyWrite Index was announced in January 2005 with daily data back to October 1997.

This document contains index performance data based on backtesting, i.e., calculations of how the index might have performed prior to launch. Backtested performance information is purely hypothetical and is provided in this document solely for information purposes. Backtested performance does not represent actual performance and should not be interpreted as an indication of actual performance.

The performance of indexes is for illustrative purposes only and does not represent actual investment performance. Index performance returns do not reflect management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

The author of this research report, Michael Oyster, is senior vice president at Fund Evaluation Group.

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