the volatility index

The decision by the Security and exchange board of India to introduce the volatility index will add depth to the futures and options market in the country. Such an index already exists on the NYSE as well as the LSE, where it is called VOX. With this index an investor can have data that helps him gauge future price movements on the basis of advanced computer based simulations that try and predict price instability.
While the index will not make risk disappear all together, and neither will volatility vanish, it will make indexing volatile changes in stock process that much easier. The index will lead to three major benefits for investors. In the first will be the information advantage that will come form a complex supercomputer based mechanism that will provide a road map for future pricing and thus introduce new and more transparent derivative products. The second gain form such an index will be in that it will allow for inventors to gauge implied volatility - that is by what measures are prices likely to move in the future based on current and historic trends. Lastly the retail investor who has been largely ambivalent about entering the futures and options market will be encouraged by more information that such an exchange will provide. Thus a larger base on investor will now be able to enter the futures and options mart.

The index is the perfect tool for the Indian markets. There are several factors likely to introduce future pricing uncertainty. These include the monsoons, the impact and depth of a recession in the US the rise of the rupee and policy changes in certain sectors such as telecom and retail. Not all of these will be covered by their index but a substantial measure of information driven decision-making can ome form the factors that are included in the index.
As for the actual adoption of the index, there are two principal options one is to adopt the VOXC which is already in use abroad, the second is to go in for the measure that, according to media reports, has been developed by the national institute of industrial engineering.With Indian stock market at record high and the expectations of growth continuing the added measure to gauge volatility will help investor confidence. A better-informed investor is always likely to take greater stakes in the market and thus the measure bodes well for the growth of the Indian investor community.