### Demonstrate how VIX futures work

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##### Reference no: EM132183863

Question - Cboe Volatility Index (commonly referred to as VIX) is a measure of volatility published by Chicago Board Options Exchange. It is also commonly known as the fear index, as it measures how volatile the stock price movements are. When times are good and stable, its values are low. But when the market experiences swings, VIX value increases.
A number of derivatives, such as &P 500 VIX Short-Term Futures, were developed, and they are designed to profit on either low or high VIX values.

Investors can supplement their stock portfolio with VIX future and receive reimbursements, if the volatility increases. On the other hand, they can also take the opposite position and profit from stability on the market.

1) Demonstrate how VIX futures work.

2) Critically evaluate how risk can be hedged using VIX futures and, on the other hand, what risks such a strategy can bring.

3) Analyse the reasons why VIX derivative investments are often a target of a public criticism.

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