Question: How would you interpret a large increase in the CBOE volatility index (VIX)? Explain why the VIX increased substantially during the credit crisis. The CBOE

How would you interpret a large increase in the CBOE volatility index (VIX)? Explain why the VIX increased substantially during the credit crisis. The CBOE volatility index (VIX) represents the implied volatility derived from options on the S&P 500 index (an index of 500 large stocks). An increase in the index suggests that market fear has increased, as investors who sell stock index options demand a high premium to incur the risk that the stock index might move substantially above or below the exercise price.

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