The birth of the concept of volatility is the famous Black Monday in history (1987 10 19). After the collapse of the world stock market under the guidance of the sharp decline of the American stock market, it caused a worldwide economic recession. The stock market fell by 23% on Monday, and the market fluctuated seriously, which attracted people's attention. Therefore, volatility has become an important indicator of financial markets. Until 1993, the Chicago Board Options Futures Exchange published the VIX index, warning the future stock market crash.
Volatility can be used to warn of market risks. In short, when everyone is moving towards the same goal, they are optimistic, firm and consistent about the stock market and the economy, so the internal wave is not big, but once someone starts to waver, their will will will be unstable and great changes will take place. For example, when discussing a problem, everyone keeps the same opinion and there is not much argument. The problem is simple, and it can be solved by unanimous vote. But if someone raises an objection, the discussion will become troublesome. Everyone is unreasonable, and they don't want to compromise with others, stick to their opinions and even quarrel.
The role of volatility volatility not only represents the views of most people in the market on future index changes, but also represents the psychological changes of most people in the market. Fluctuation is like the word panic. The greater the volatility, the more people will be afraid and uneasy, and the volatility of market transactions will increase. When the target is achieved, the volatility will return to a stable level. Since its appearance, the panic index has soared many times during the economic crisis, especially the stock market fell sharply during the economic crisis, which was the second highest point during the Asian financial crisis 1998 and reached an all-time high during the two subprime mortgage crises in 2008.