Volatility Index - A new tool for Risk Management

R. Palaniswamy, K. Lakshminarayanan, V. Venkatesh

Abstract


Volatility index is introduced in India on March 2008, which captures the behavioural and psychological aspects of traders. The ultimate purpose of introducing is to avail new instrument for trading on it and hedge through it. It can also be used to predict the change in near month. The primary objective of the research is to find the extent of relationship prevailing between market and volatility indices. The data collected from NSE, from November 2007 to February 2009, is analysed using correlation and it resulted in -0.677 which infers 3 VIX contract is necessary to hedge two Nifty contracts.

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