VIX is the trade mark of Chicago Board Options Exchange (CBOE).CBOE was the first exchange in the world to compute a volatility index back in 1993.
In India VIX was launched in April, 2008 by National stock Exchange of India. India VIX is a volatility index based on the NIFTY Index Option prices. It is computed by using the best bid and ask quotes of the out of the money, present and near month NIFTY option contracts. The introduction of VIX has helped the traders guage market sentiments .Higher the VIX, higher the expected volatility.
Higher the volatility represents higher the uncertainty. During higher uncertainties the prices tend to go lower. Hence we can conclude that there will be a negative correlation between India VIX and NIFTY, i.e VIX tends to drop when NIFTY goes up, and vice-versa.
VIX can be used to hedge the portfolios in the situations of uncertainty.
