India VIX: Examining the Negative and Asymmetric Volatility Index - Market Return Relationship

Abstract

India's National Stock Exchange (NSE) introduced India VIX in April 2008. India VIX is a volatility index based on the computation methodology of Chicago Board of Options Exchange (CBOE). However, the NSE made some changes like 'Cubic Spline Fitting' to the India VIX computation methodology to suit the microstructure design of NIFTY Options order book. India VIX captures the expected market volatility over the next 30 calendar days. It uses the best bid and asks quotes of the out-of-the-money near and mid-month NIFTY option contracts traded on the derivatives segment ofNSE. Market participants' perception of Volatility in the near term is depicted by India VIX. Volatility Index is different from price index like NIFTY. Volatility Index calculates the Implied Volatility from timeseries data of option (both call and put) prices. Thus, volatility index is a model free quantity. India VIX is now computed and disseminated on a real-time basis throughout each trading day by NSE.