Several issues arise in the estimation of volatility:

           1.Volatility in Indian market is quite high as compared to developed markets.

            2.The volatility in Indian market is not constant and is varying over time.

            3. The statistics on the volatility of the index futures markets do not exist (as these markets
                are yet to be introduced) and therefore, in the initial period, reliance has to be made on
                the volatility in the underlying securities market.

      The LCGC has prescribed that no cross margining would be permitted and separate
      margins would be charged on the position in the futures market and the underlying
      securities market. In the absence of cross margining, index arbitrage would be costly and
      therefore possibly inefficient.