Understanding the VIX

Abstract

Financial news services now routinely report the level of the Chicago Board Option Exchange's Market Volatility Index, or VIX. This practice may be healthy in the sense that investors are seeking more information with which to assess the state of the economic environment, but investors need to understand exactly what the index means in order to fully appreciate its usefulness and to avoid misunderstandings and misconceptions. The author explains the VIX, its history and purpose, and explains its place within the array of indices that help describe where the economy stands relative to recent historical points of reference. <bold>TOPICS:</bold> <ext-link>Exchanges/markets/clearinghouses</ext-link>, <ext-link>volatility measures</ext-link>, <ext-link>in markets</ext-link>