INDIA VIX - ECONOMY
News: India VIX Index rallies: What
does market volatility mean for investors?
What's in the news?
●
Recent, surge in the India VIX reflects the
anticipated near-term volatility in the market.
Volatility Index (VIX):
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The Volatility Index, commonly known as VIX or the Fear Index, measures how much volatility market players expect in the near future.
Role of Volatility in
Finance:
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Volatility refers to the rate and extent of price
changes in the market, which is often associated with financial risk.
Behaviour of the VIX:
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During periods when the market is highly volatile,
the VIX tends to increase.
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Conversely, when market volatility decreases, the
VIX tends to fall.
Calculation of the
VIX:
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The VIX is calculated based on the expected annualized volatility,
expressed in percentage terms, derived from the order book of options on a
specific underlying index.
India VIX:
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The India VIX is an index that shows the expected
level of volatility in the stock market over the next 30 days.
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Higher numbers mean more expected volatility.
Working:
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It uses the prices of options on the NIFTY Index to calculate expected
future volatility. This is expressed as a percentage.
Importance of India VIX:
1. Indicator of Fear:
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It is sometimes called the “Fear Index” because it
indicates how worried traders are about the market.
2. Decision-Making:
● Investors look at the VIX to take decisions regarding investments. When the VIX is high, the market is considered riskier.