India VIX

The index uses the best bid and ask quotes of near-month and next-month Nifty options traded on the F&O segment of NSE.

It is computed mainly from out-of-the-money options: calls with a strike above the at-the-money strike, and puts with a strike below it. The at-the-money strike is the one just below the forward index level, which is the latest price of the Nifty futures contract of the same expiry.

A strike is set aside when its bid-ask spread is more than 30% of its mid price, or when it has no quotes. Where possible, its price is filled in from the other strikes by a fitted curve (a natural cubic spline).

The method is that of the Chicago Board Options Exchange (CBOE), adapted to the Nifty options order book, with time to expiry counted in minutes rather than days. Each option contract is weighted in proportion to the average of its bid-ask quotes and in inverse proportion to its strike price.

Variance, which is volatility squared, is computed separately for the near and next month and then interpolated to a constant maturity of 30 days. The square root of that variance multiplied by 100 is the India VIX value.

India VIX uses the near and next month options so that together they span a 30-day calendar period. It moves from the near and next month contracts to the next and far month when 3 trading days are left to expiry.