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...state's contribution, however, would require an endowment on the order of $16 billion, a nearly impossible task even in flush times. (Just a few years ago, the school's endowment was around $7.5 billion, but it has taken a significant hit with the fall of the stock market.) Which means that in order to survive, the university may have to make dramatic changes that could threaten its character. (See pictures of the college dorm's evolution...
What is next for the VIX? That all depends on investors' fear of a further decline in stock prices. Remember: even if the VIX continues to fall, that does not mean that high volatility for stocks is finished. Investors should still hope for volatility, realized from a recovering rally. But a low VIX - signaling reduced uncertainty - would likely signal a coming rally, rather than stagnation in prices...
...price of an option, which gives an investor the right to buy or sell a stock at an agreed price, called the strike price, largely depends on the volatility of the underlying stock. If a stock is more volatile, and therefore more likely to move farther up or down, options are more valuable. For instance, as the market has fallen over the past year, investors have flooded into put options - the right to sell a stock - in order to hedge their portfolio against steep falls in the stock market. Thus, the prices of put options increased, and with them...
...options market is driving the price of the VIX. But there's a twist: As the stock market falls, investors tend to buy put options in order to hedge against falling prices. As the price of put options increases, the implied volatility of those options increases, and so does the VIX. However, if the S&P 500 had moved in the exact opposite direction this year, the VIX would not have been as high even though the S&P 500's actual, realized volatility would have been identical. Volatility is symmetric to market rises and falls...
...perfect, nor is the sense of volatility it attempts to predict. Volatility can mean many different things in practice: a stock whose price undergoes large price fluctuations and one that chops quickly in a small range might have the same measured volatility, but they are clearly not equally risky. Even though the concept of volatility is abused and taken for granted in the financial world, it is still the best-known measure of risk and, therefore, useful for investors. (See the best business deals...