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Deal Confidently With Volatility: Equity Derivatives
Deal Confidently With Volatility: Equity Derivatives
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or inability to use by any party, or in connection with any failure of performance, error, omission, interruption,
defect, even if NSEIL or representatives thereof, are advised of the possibility of such damages, losses or expenses. FUTURES ON INDIA VIX
NVIX
Volatility as an Asset Class In the year 2014 the India VIX values were in the range of 11.5 to 37.5.
Since India VIX signifies volatility, the values will be computed upto 4
decimal places as market participants may like to analyse impact on
The global financial crisis has re-emphasised the impact of volatility on
prices due to small changes in volatility.
portfolios. Post the financial crisis investors started exploring various
options to hedge their portfolios against changing volatilities. Focus to
More information on India VIX can be found at
index exposure, diversifying across asset-classes and volatility as one of
http://nseindia.com/live_market/dynaContent/live_watch/vix_home_p
the asset classes have emerged. Exchange traded products on volatility
age.htm
have picked up.
10
1000
India VIX indicates the investor’s perception of the market’s volatility in 0 0
the near term. From the best bid-ask prices of NIFTY Options contracts, a
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volatility figure (annualised %) is calculated which indicates the
expected market volatility over the next 30 calendar days. India VIX uses
the computation methodology of CBOE, with suitable amendments to
adapt to the NIFTY options order book.
A high India VIX value would suggest that the market expects significant Derivatives on Volatility Indices
changes in the Nifty, while a low India VIX value would suggest that the
market expects minimal change. It has also been observed that Globally exchanges are offering derivative products based on the
historically, a negative correlation exists between the two. Volatility volatility index. These products have become quite popular among the
indices like India VIX are often perceived to display mean reverting participants as it expands the opportunities available to participants and
characteristics by oscillating around a long-term variance. provide efficient means to hedge against volatility. Some studies have
also shown that derivatives on volatility indices can be useful for
portfolio diversification and hedging.
“VIX” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and Standard & Poor’s has
granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and
for purposes relating to the India VIX
NVIX
Volatility indices enable market participants to trade expected changes
in market volatility in a single transaction. Investors expecting rising NVIX Futures Contract Specification
volatility levels will go long, whereas investors expecting decline in
volatility will go short. Underlying India VIX Index
Symbol INDIAVIX
Instrument Type FUTIVX
Lot Size 750
2
Final Settlement Price Closing price of the underlying index
Take view on volatility Final Settlement Cash Settlement
Procedure
Final Settlement Day All open positions on expiry date shall be settled on the next working
day of the expiry date (T+1)
under: Using the above example change in 1 tick will have following impact.
Historic values for India VIX - Jul - 98 Launch of NSE's Certification Program in Financial Market
Dec - 96 Commencement of trading settlement in dematerialised securities
http://www.nseindia.com/products/content/ Apr - 96 Launch of S&P CNX Nifty
equities/indices/historical_vix.htm. Apr - 95 Establishment of NSCCL, the first Clearing Corporation
The historic values of India VIX are available from March 02, 2009. Nov - 94 Capital Market (Equities) segment goes live
Jun - 94 Wholesale Debt Market segment goes live
Computation method of India VIX -
Apr - 93 Recognition as a stock exchange
http://www.nseindia.com/content/vix/India_VIX_ comp_meth.pdf