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NSE plans new derivative to hedge against mkt volatility

The National Stock Exchange is awaiting the Sebi nod for launching a new derivative ?India VIX?, which will help investors hedge against market volatility, chairman Ravi Narain said Tuesday. The new product will be based on Nifty options order book.

The National Stock Exchange (NSE) is awaiting the Sebi nod for launching a new derivative ?India VIX?, which will help investors hedge against market volatility, chairman Ravi Narain said Tuesday. The new product will be based on Nifty options order book.

At present, both BSE and NSE have indices to gauge volatility based on Sensex and Nifty, but they are yet to offer any derivative based on these. VIX was first introduced by the Chicago Board of Options Exchange (CBOE) as the volatility index for the US markets in 1993 based on S&P 100 Index option prices. The methodology was later revised in 2003 and the new volatility index was based on S&P 500 Index options. CBOE also introduced VIX options and VIX Futures.

Volatility index will be different from a price index such as NIFTY or Sensex. While a price index measure the direction of the market and is computed using the price movement of the underlying stocks, the volatility index measures the dispersion or variance or change and is computed using the order book of the underlying index options and is denoted as an annualised percentage.

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First published on: 19-09-2012 at 02:33 IST
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