Abstract:

The volatility index (VIX), first created by the Chicago Option Exchange in 1993, was an index that measured the degree of fear in the markets and was one of the important indicators followed worldwide because the financial markets provided information about future uncertainty. Based essentially on the concept of covered volatility, volatility indicators began to be created for use in financial markets from the mid-1970s. The first index has begun to create volatility indices in emerging markets and then in emerging markets, which can be classified according to the calculation methodologies, according to the forms of creation, i.e. whether they are an academic or official index or not, and according to the base assets of the options used in calculation. Although the VIX index is used to monitor international markets in our country, a volatility index has not yet been created. In this study, volatility indicators that have found the scope of application in advanced markets and are placed in an important place for risk management are introduced, referring to the information as a reference in relation to volatility indicators around the world for Turkey independent of the model volatility indicator can be used while calculating the methodology used by the Chicago Option Exchange during the calculation of the VIX index.

Abstract:

Volatility index, firstly introduced by Chicago Board Options Exchange in 1993 and named as VIX, measures the degree of the fear in financial markets. Since it provides the information about uncertainty of the financial markets in future, it has become an important and followed indicator around the world. Volatility indexes, basically based on concept of implied volatility, have been started to create to use in the financial markets since mid-1970s. After introducing first index, both developed and developing countries has started to introduce volatility indexes subsequently and they can be classified  according to their calculation methodology,  formation of by whom (by academicians or by officials) and underlying asset of options that are used in calculations. Although VIX has been used for monitoring international financial markets, it has not been introduced yet in Turkish financial markets. This study provides theoretical and applicative information about volatility index which is used and seen as important tool for risk management in developed financial markets. It is proposed that the most appropriate volatility index calculation methodology in which volatility index is model free for Turkey is the methodology used by Chicago Board Options Exchange.

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