Volatility Index (VIX) - Financial definition
Concise definition of the term Volatility Index
The Volatility Index (VIX) is a measure of market volatility and investor sentiment, often referred to as the "fear index," derived from options prices on the S&P 500 index.
Comprehensive definition of the term Volatility Index
The Volatility Index (VIX) serves as a key indicator of market volatility and investor fear or complacency, calculated by the Chicago Board Options Exchange (CBOE) based on the implied volatility of S&P 500 index options. It is widely used by traders, investors, and analysts to gauge market sentiment, assess risk levels, and inform trading decisions.
For example, a high VIX level typically indicates heightened uncertainty and potential market downturns, prompting investors to seek safe-haven assets or employ risk management strategies such as hedging. Conversely, a low VIX level may signal market stability or excessive optimism, potentially leading investors to take on more risk. As such, the VIX plays a crucial role in portfolio management, derivatives pricing, and overall market analysis.