Volatility in financial markets refers to how rapidly and unpredictably an asset's price changes. It is the primary measure of investment risk in modern finance.

Historical vs Implied Volatility

  • Historical Volatility (HV): Calculated from past price data using standard deviation of daily returns (annualised). Backward-looking.
  • Implied Volatility (IV): Derived from current option prices using the Black-Scholes model. Forward-looking — reflects market's expectation of future volatility.

India VIX

India VIX (Volatility Index) is NSE's fear gauge — computed from Nifty 50 option prices. High VIX = market fear/uncertainty; Low VIX = complacency. VIX typically spikes before Union Budget, elections, and RBI policy announcements.