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April 9, 2002 | 1325 IST
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Money > Business Headlines > Report April 9, 2002 | 1325 IST |
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New index to gauge market volatilityBS Markets Bureau India has got its first volatility index, Refco VIX, on the lines of the globally acknowledged indices, the Nasdaq VXN and CBOT VIX. This index will help in determining the volatility in the market and will also give a fair indication about the bottoming out or topping of the cash market. The index was launched by Refco-Sify Securities last week. "This is basically a sentiment index because it alerts on fears and hopes reflected in the options volume," Vineet Bhatnagar, managing director, Refco-Sify Securities, said. Till now there was no indicator that could give a clue as to whether the market bottomed out. With the help of the volatility index, it becomes easier to gauge how the market will behave," Sandeep Tandon, head of equities, Refco-Sify said. Volatility has an inverse relationship with the cash market. The index increases when the cash market declines and vice versa. According to the trends of the Nasdaq VXN and CBOT VIX, the higher the perceived risk in the constituent stocks of the index, the higher was the implied volatility and the more expensive were the associated options, especially puts, Refco-Sify officials explained. A higher volatility index indicates panic in the market. It was observed that in the post-September 11 scenario, the volatility indices had moved above their historical highs, Tandon said. "Refco VIX exhibits the same characteristics as its global counterparts. The index was stuck in a range of about 10 per cent to 20 per cent. In the few weeks before September 11, the volatility had begun to trend lower and the index spiked to 41 per cent, displaying the severe downside explosion in the cash market," Tandon added. The Refco VIX is based on Nifty options and is calculated by creating a synthetic Nifty option with the same strike price as the spot and 30 days to maturity. Powered by ALSO READ:
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