NSE has been in the forefront of bringing the latest products and services to the Indian capital markets for the benefit of the investors. In another innovation in the Indian markets, NSE is pleased to announce the launch of India VIX, a volatility index based on the Nifty 50 Options prices.

Over the last decade or so, there has been a paradigm shift in the Indian capital markets. The Indian markets are no longer isolated from the global economic events. We have witnessed bouts of volatility in our markets, some of which may have their origin in global events. The recent sub prime crisis and news of probable recession emerging from the U.S. is an example of how events which are international, can be a cause of volatility in our markets. Events both domestic and international play a role in affecting the volatility of stocks. Inflation rates, global energy prices, exchange rate fluctuations etc. are witnessing constant changes in the recent years. These are affecting the volatility of the markets.

A Volatility Index reflects the market’s expectation of volatility over the near term. The index captures the implied volatility embedded in option prices. Volatility is often described as the rate and magnitude of changes in prices and, in, finance often referred to as risk. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options. Market volatility keeps changing as new information flows into the market. It would be imperative for market participants to have an index designed to track market volatility.

The India VIX is a simple but useful tool in determining the overall volatility of the market. Not only is the volatility index used as an indicator of implied volatility of the market, various tradable products, such as futures and options contracts are available on the volatility index internationally. There is no intention to introduce tradable products based on the India VIX in the immediate future. It is important that the market participants get used to understanding and tracking the India VIX number and what it signifies.

Presently, India VIX would be calculated for the entire day and made available at the end of the day, on the website of NSE. Subsequently, the index would move to on-line dessimination. — www.nseindia.com

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