CBOE Volatility Index
A mathematical measure of the implied volatility of options trading on the S&P 500 index. That is, the CBOE Volatility Index attempts to measure the likelihood of option prices to vary unpredictably in the context of a particular pricing model in this case, the Black-Scholes model. A higher number on the index represents greater volatility, while a lower number represents lower volatility. While critics maintain that its usefulness is overstated, the index is considered a leading indicator of option volatility in the wider market. The CBOE Index is operated by the Chicago Board of Options Exchange, and is also known as the VIX.
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An equity volatility measure developed in 1993 by the Chicago Board Options Exchange. The index is calculated using eight S&P 100 (OEX) option contracts, four calls and four puts, with an average time to maturity of 30 days. Many traders use the VIX as a general measure of index option volatility. Also called CBOE Volatility Index.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.