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.

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.