Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
volatility index
Market terminology

What is the volatility index?

05.10.2020
2 min read

Volatility index: features and functions of the tool

The volatility index, or VIX, is an instrument for trading on an exchange for which option values are used. These prices show the market sentiment taking into account the probable volatility of the S&P 500 index.
The second name of the instrument is the fear index. It started to be used on the Chicago Stock Exchange in 1993. The index was created to assess market expectations within 30 days. The first variant of calculation is based on at-the-money options market indices of the S&P 100 Index.
In 2003, the volatility index algorithm was improved. The modern version is based on the S&P 500 Index (SPX) and shows the expected volatility by waiting for the value of SPX options. The latter are selected from an extensive list of strikes with specific weights. By using SPX, the new VIX calculation methodology from the theoretical idea category has evolved into an important tool for trading and hedging volatility.
In 2004, the first futures contract on this index appeared. After 2 years, the Chicago Stock Exchange began to use VIX-options, which became the most successful instrument in the history of the trading floor.
In October 2008, a historical high was recorded. The volatility index was 89.53. The minimum index was observed in 1993 – 8.89. In the period from 1990 to October 2008 the value of VIX is considered average, it was registered at the level of 19.04.

volatility index

The main concept of index calculation is directly related to the theory of using volatility swaps. These market instruments are part of a class where Variance Swap is considered the basic concept. It is a forward contract, calculated on the annual value of dispersion and volatility square, which is already implemented. The contract delivery price is also used to identify the payment for the period of operation.
The method of price analysis in VS is used in some cases for VIX as well. Valuation of Variance Swap is performed by means of swap replication process taking into account the option portfolio. The main principle in this case is a log-contract or an exotic option on a futures or stocks. Its hedging guarantees a payout equal to the price yield variations of the futures.
The Moscow Stock Exchange also plans to use a volatility index. According to experts, this instrument will allow analyzing the Russian market and expanding opportunities for traders and institutional investors. The index will be calculated every 15 minutes of exchange operation.
The volatility index is a convenient tool for analyzing activities on the stock exchange. Its result influences the state of trades and makes it possible to predict the behavior of options within 30 days.

Tags: Market terminology
0
Previous Post US-China negotiations: expectations and concrete steps to resolve the situation Next Post Chaslau Koniukh: Global market shares show good growth

You Might Also Like

equity
Market terminology
Equity and its importance for a trader
20.06.2024
offset
Market terminology
What offset means: application of the mechanism to stock exchange activity
22.12.2022
callable bond
Market terminology
What is a callable bond and its advantages
18.04.2022
fractal
Market terminology
Fractal pattern and its peculiarities for trading
16.03.2024
Commitments of Traders
Market terminology
Commitments of Traders indicator as a source of insight into the overall market picture
21.08.2023
Trader's tools
Market terminology
Trader’s tools: peculiarities of the order book use
23.04.2021

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Popular Posts

  • Li Ka Shing: How can success be achieved without money and education?
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Ingeborg Mootz: a woman who became a stock player at the age of 75
  • Analysts: Egypt’s economy to continue falling in 2023
  • Businessman Chuck Feeney: the man who gave the world Duty Free
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram

© 2024 CHASLAU KONIUKH. ALL RIGHTS RESERVED. Expert in marketing and project management, international investments, financial analyst.

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics