The introduction of Volatility Index will make volatility an asset to the investor's portfolio. Investors now can hedge their portfolios against volatilities with offsetting position in the futures or options contracts.

The National Stock Exchange (NSE) introduced a Volatility Index (VIX) on April 9, 2008. The VIX mirrors the expectation of the market volatility over the near term, i.e., in the next 30 days period. VIX is expected to reflect the implied volatility in option prices. It is based on Nifty 50 Index option prices. VIX is a percentage figure obtained from best bid ask price of Nifty 50 option contracts traded on Futures and Options (F&O) segment of the NSE. Investors can use VIX to hedge their positions in the spot markets. It also helps them identify mispriced options.

The word volatility refers to rate and magnitude of change in prices. It is often referred to as risk in financial markets. It helps the investors understand the market well. Higher the VIX higher will be implied volatility in the market. Greater liquidity in options segment indicates better VIX. NSE reports that the other products like intra-day volatility index and sector-specific volatility indices are also likely to be introduced.

The Chicago Board Options Exchange (CBOE) introduced the volatility index in 1993 with the name VIX. In 1994, the German Futures and Options Exchange (GFOE) introduced an implied volatility index with the name VDAX. In India Venkateswarulu, Associate Professor of Finance, National Institute of Industrial Engineering (NITIE), Mumbai, developed the implied volatility index after examining the issues and problems in the Indian market. VIX is a symbolic indicator to manage the risk in the financial markets. It provides an understanding of the volatility in the option markets. The movements in VIX indicate the future market conditions and facilitate the portfolio planning of the investors.

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