The variance tag has no wiki summary.
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46 views
How to calculate the conditional variance of a time series?
I am reading a paper where the term conditional variance is mentioned, but I am not really sure what is meant by this and how this can be calculated:
Fig. 2 shows the conditional variances of the ...
-5
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0answers
43 views
Asymmetric pay-off function [closed]
Does the calculation of variance and standard deviation in, say, a coin flip assume a symmetric pay-off function? If the pay-off function is asymmetric, is standard deviation a meaningful measure of ...
1
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0answers
63 views
How to measure if variance is greater at a certain time of day?
I'm not very fluent in the quant vernacular, so perhaps the nature of my question will be better illustrated as a hypothesis.
One market has closed and another market elsewhere on Spaceship Earth is ...
0
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0answers
61 views
Mean-variance minimizser
I am working on a project that involves pricing european call options in incomplete markets. Now I need to find a unique measure $Q^*$ such that
$$Q^* = \min_{M_e} E_Q [V(T)-F(w)]^2 = \min_{u} E_Q ...
1
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0answers
403 views
portfolio optimization with a loop
I am attempting to minimize the variance of a 3 stock portfolio using optimization within a loop. What I have done is calculated the stock returns and cov matrix from dates 1980-01-01 to 1989-12-31 ...
2
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1answer
85 views
How to calculate two-time scale variance?
I am having trouble understanding how to calculate two-time scale variance as I do not have a strong mathematical background. Suppose I want to calculate the TSRV at 5 min intervals. Do I calculate ...
3
votes
1answer
100 views
Why are there different estimators for stock volatility? (realized variance, RAV, etc)
I am very confused about why different volatility estimators (RV, RAV, BPV, etc) exist. If the goal is to find the best estimator for stock volatility, and volatility is latent, how do I know which ...
2
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2answers
198 views
Should I use GARCH volatility or standard deviation in cross-sectional regression?
I want to do a cross-sectional study where the historical, medium-long run volatility of some return series (call it $R_t$) is included as a regressor. Which of the following two estimates of ...
8
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2answers
492 views
Why do low standard deviation stocks tend to have superior future returns?
I've recently stumbled on something that really surprised me. These papers (1, 2) find that past standard deviation of returns is inversely related to future returns. That is, portfolio of low ...
6
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1answer
417 views
Conditional or unconditional volatility?
I am reading a paper (reference below) that states "The conditional volatility for each underlying security (or for a market index) can be estimated using the standard deviation of the stock’s ...
1
vote
1answer
142 views
Minimum variance hedge with more than one asset
My portfolio comprises of 3 assets A,B,C that are correlated and the variance-covariance structure is known. At any given point in time, my position in Asset A say is given to me.
I need to ...
2
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1answer
102 views
Combining covariances?
Consider an economy with assets with return processes $A$, $B$, $C$, $D$. Consider a weighted index with return process $I=aA + bB + cC + dD$ where $a,b,c,d$ are coefficients, and $a+b+c+d = 1$.
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1
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2answers
280 views
What is the instantaneous P&L of a Variance Swap?
What is the instantaneous P&L of a variance swap.
Is it $(\sigma^{2}_{t}-\sigma^{2}_{implied})dt$?
8
votes
1answer
212 views
Do weights from portfolio theory contain bias?
I want to experiment with some portfolio modelling and I was wondering if you guys could help me with something. If I try to estimate and implement the traditional two-fund portfolio consisting of one ...
3
votes
1answer
303 views
Linear regression and assets direction prediction
I have the following asset returns Y and the predictions for the same periods Y':
Y = { 10, 200, -1000, -1, -7 }
Y' = { 1, 2, -3, -4, -5 }
The OLR R-squared for ...
4
votes
2answers
329 views
Choice of prior as a shrinkage target in portfolio construction?
There's various research showing how priors such as the minimum variance portfolio turn out to be a surprisingly effective shrinkage target in portfolio construction.
The sell point of these priors ...
8
votes
5answers
4k views
Why would an investor trade a variance swap over a volatility swap?
Why would an investor trade a variance swap over a volatility swap? Is it simply related to the leverage involved in a Var (i.e. sigma-squared) or is there something else to it?
4
votes
1answer
156 views
How to scale option pricing components in regard to time
I am looking at closed-form options approximations, in particular the Bjerksund-Stensland model.
I have run into a very basic question. How should I scale the input variables in regard to time? My ...
3
votes
2answers
610 views
Covariance for arbitrarily large portfolios
I am implementing a method in Java to calculate the variance, covariance, and value at risk for a portfolio, which should be flexible for use with any number of assets in a portfolio. I am struggling ...
16
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6answers
9k views
What's the difference between volatility and variance?
How do they differ in what they imply about an underlying's (or any variable's) movement?
29
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5answers
1k views
Lévy alpha-stable distribution and modelling of stock prices.
Since Mandelbrot, Fama and others have performed seminal work on the topic, it has been suspected that stock price fluctuations can be more appropriately modeled using Lévy alpha-stable distrbutions ...
13
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4answers
646 views
Approximately what proportion of a stock’s volatility is explained by market movement?
Assume we decompose the daily (log) returns of a stock as beta times market movement plus an idiosyncratic part. If this is done ex-ante, what proportion of the variance is explained by the market ...
