Volatility
How to measure
Using indexes to measure volatility.You can find info on these indexes from Bloomberg
1. Equity market volatility: VIX index; VIX gauges the cost of insuring against declines in the S&P 500
2. Fixed income volatility: LBSOX index
3. Currency volatility: VXY G7 volatility index
Why to measure?
the reason to measure volatility is because it is a great measure of risk. The higher the volatility, the higher the standard deviation of expected returns. Because returns are less certain, the level of risk is higher.
On the other hand, investments in options becomes more valuable as volatility rises. Why? because there is a greater chance that (due to the higher volatility), you might be "in the money". See our discussion on Options for more details..
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