InvestorQ : Can you explain how the VIX is calculated?
Anusha Savla made post

Can you explain how the VIX is calculated?

sarah Leo answered.
3 years ago

The calculation of the VIX is based on the popular Black & Scholes model for option valuation. Before getting into the mathematics of Black & Sholes, let us understand the concept underlying the model. The mathematical formula for VIX is as under:

Of course, there are simpler excel sheets available and your trading terminal itself allows you to calculate the Black & Scholes options value by merely imputing the input values. Let us just spend a moment understanding the Black & Scholes formula as it gives greater clarity on the subject. Black & Sholes formula calculates the fair value of the option and helps you to find out if call and put options are underpriced or overpriced.