have an account?【sign in】cboe market volatility index definition:An In-Depth Explanation of the CBOE Market Volatility Index (VIX)
bangerauthorCBEO Market Volatility Index Definition: An In-Depth Explanation of the CBOE Market Volatility Index (VIX)
The CBOE Market Volatility Index (VIX) is a widely followed measure of the expected volatility of equity markets in the United States. Also known as the "fear gauge," the VIX is calculated using the options prices of the S&P 500 index futures, providing investors with a real-time indicator of market sentiment and potential risk. In this article, we will provide an in-depth explanation of the CBEO market volatility index, its purpose, and how it is calculated.
Definition of the CBOE Market Volatility Index (VIX):
The CBOE Market Volatility Index (VIX) is a financial market index calculated using the volume-weighted average prices of S&P 500 index futures contracts with a duration of three months. The VIX measures the expected volatility of the S&P 500 index over the next 30 days, providing investors with a measure of market anxiety and fear. The VIX range typically lies between 0 and 40, with higher values indicating increased uncertainty and potential market volatility.
Purpose of the CBOE Market Volatility Index (VIX):
The CBOE Market Volatility Index (VIX) serves several important purposes in the financial market. Firstly, it provides investors with a real-time indicator of market sentiment and uncertainty, helping them to make more informed investment decisions. The VIX also serves as a barometer for market volatility, helping investors to anticipate potential stock price fluctuations and adjust their investment portfolios accordingly. Finally, the VIX is often referred to as the "fear gauge" due to its correlation with market performance during periods of high volatility, providing investors with a valuable tool for risk management.
Calculation of the CBOE Market Volatility Index (VIX):
The CBOE Market Volatility Index (VIX) is calculated using the volume-weighted average prices of S&P 500 index futures contracts with a duration of three months. The calculation is performed daily using option prices provided by the Chicago Board Options Exchange (CBOE). The VIX is calculated using the following formula:
VIX = S&P 500 index futures volume-weighted average price × 3/25
Where:
VIX = CBOE Market Volatility Index (VIX)
S&P 500 index futures volume-weighted average price = the average price of S&P 500 index futures contracts with a duration of three months
3 = the duration of the S&P 500 index futures contract in days
25 = the number of future days covered by the S&P 500 index futures contract
The CBOE Market Volatility Index (VIX) is a valuable tool for investors to understand market sentiment and potential volatility. By understanding the purpose and calculation of the VIX, investors can make more informed decisions and better manage their investment portfolios during periods of market uncertainty. As a barometer for market volatility, the VIX provides a valuable insight into the state of the financial market and the potential risks associated with investing.