Investors would now be able to hedge their portfolios against the risk arising out of volatility in the markets, with the National Stock Exchange launching its volatility index on a real time basis on Monday.
This is for the first time in the country that volatility index is being disseminated, on a real time basis.
The volatility index, called the 'India VIX', depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher would be the expected volatility and vice-versa.
So far, the volatility index, expressed in a percentage figure, was shown at the end of the day. But now it will be displayed on a real time basis.
"Once India VIX is available for trading after regulatory approvals, it will give a lot of security to investors and traders, who face uncertainty, because the new product will empower them with better information and foresight," NSE MD and CEO Ravi Narain said in a statement.
"More importantly, it will give them the ability, to use the product to hedge their portfolios against the risk arising out of volatility," he added.
NSE will also be applying to the capital market regulator SEBI for permission to start derivatives on the index, after it has been tracked for a suitable period, the exchange said.
Once the futures and options start on the index, investors whose portfolios are affected by volatility in the market can use the product to hedge their risks.
India VIX is a volatility index based on the index option prices of NSE's benchmark index Nifty.
Before starting derivatives on the volatility index, the index will be disseminated on a real time basis, so that market participants can understand the behaviour of the index, before trading on it, the NSE added.
Volatility refers to the amount of uncertainty or risk about the size of changes in a security or index value. A higher volatility means that a scrip's value can potentially vary over a larger range of values. This means that the price of the security can change dramatically.
A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.