A measure of the variation in price over time. Also a measure of the risk of a financial instrument.

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Estimate Option Price Given X% Move N Days in the Future

I was wondering if someone could recommend a method to estimate the price of an option N days from now given an X% move in the underlying. I have fitted a volatility surface but where I am running ...
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49 views

Returns used in volatility calculation

Can anyone explain the definition of returns they use in this paper? Page 142: https://www.jpmorgan.com/jpmpdf/1320538072221.pdf, where it says $R^j_{k,n} = \sum_{i=1}^{13} \lambda_j^i \times \ln ...
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37 views

Volatility of Portfolio

Let's consider a stock whose price follows $$ \frac{dS(t)}{S(t)} = \sigma dW(t) $$ along with a cash account $M \equiv 1$. Let's say I have \$1 to invest in these assets and I may not short either ...
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31 views

Comparison of Implied Vol Models

My goal is to evaluate a collection of implied volatility models for accuracy supporting real time theoretical pricing of listed equity option. My current research approach is to define a set of ...
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37 views

How is the formula for the VEV (VaR-equivalent volatility) in the PRIIP document derived?

The recent regulation (page 32) on PRIIPs requires to compute a VaR-equivalent volatility defined as $$\mbox{VEV}=\frac{\sqrt{3.842-2\ln \mbox{VaR}}-1.96}{\sqrt{T}}$$ Does anyone have an idea how ...
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1answer
60 views

Does the unconditional variance implied by a GARCH equal the sample variance?

In the MATLAB default settings for GARCH estimation they say "presample conditional variance is the sample average of the squared disturbances of the offset-adjusted response data y". Am I right in ...
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13 views

Do smaller horizons better estimate volatility for longer horizons than the longer horizons?

Suppose you want an estimate of the 20 day return variance. You could grab historical lagging 20 day windows to build an estimate, or you could build 10 day lagging windows (twice as many data points) ...
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2answers
88 views

How to transform Ornstein-Uhlenbeck parameters from hourly to daily?

I get the parameters (long-term mean, volatility, mean-reversion speed, correlation) of two correlated Ornstein-Uhlenbeck processes via a likelihood estimation from hourly data. If I want to transform ...
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46 views

VIX ETP Net Vega exposure

Does anyone know the calculation that these EQD desks are using to calculate the net Vega exposure of the VIX ETPs? I am assuming it involves shares outstanding in each ETP, the value of a 30 day ...
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1answer
38 views

When is option value inversely related to expected volatility?

It is common knowledge that the greater the expected value, the higher the option value. However, there are surely exceptions, as written by Paul Wilmott's FAQs in Quantitative Finance Q: If you ...
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53 views

How to choose a GARCH model which delivers iid standardized residuals?

For my thesis I first need to examine nine financial time series and fit a conditional volatility model such that the obtained standardized residuals ($z_t = \epsilon_t / \sigma_t$) are approximately ...
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2answers
69 views

Accuracy Rebonato Swaption Approximation Formula among Different Strikes

Can somebody explain me if the Rebonato swaption volatility approximation formula is accurate for only ATM strikes, and if yes why? Can it also be used for ITM and OTM strikes? My foundings: Let $0 ...
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51 views

Easy question (?) - how to measure if volatility for two samples is significantly different?

For my bachelor thesis I'm doing a research where at one point I want to measure if volatility for a certain sample of stocks in period A is significantly different from i) the same sample of stocks ...
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22 views

Event Study - Event Induced Volatility for One Firm

Normally, in a stock price event study, we assume that the daily variance in the estimation period is the same as that during the event window. The event-induced volatility literature (eg, Boehmer, ...
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3answers
194 views

Construction of VIX and VVIX

I just read the CBOE's Whitepapers for VIX and VVIX and notice that they are constructed in the same way, i.e. a range of calls and puts on the respective underlyings (S&P500 in case of VIX, and ...
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1answer
94 views

What are some markets that don't have volatility smiles and why don't they?

I have read that volatility smiles didn't show up for equity options until 1987. Can some one give me an example(s) of what markets now still don't have volatility smiles and what an explanation for ...
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1answer
73 views

Static and Dynamic Hedging of Vol/Var Swaps

Why can a variance swap be perfectly statically hedged whereas a volatility swap requires dynamic hedging? Possible reference request to the corresponding literature.
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3answers
40 views

How to compute the foreign exchange volatility within a portfolio

Suppose I have a portfolio of 5 assets. Assets 1 and 2 have foreign exchange exposures and therefore foreign exchange volatility. How can I calculate the marginal contribution to the total portfolio ...
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1answer
84 views

A question on implied volatility surface

Let a stock price process be $(S_t)_{t\geq 0}$ and let $(K, T)\longrightarrow \sigma^*(K,T)$ be the volatility surface corresponding to vanilla options on the stock. What is, for any time $T$ the ...
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1answer
78 views

Swaption Volatility Cube arbitrage

How can I exploit an arbitrage by violating the following no-arbitrage condition (taken from the paper "Arbitrage-Free Construction of the Swaption Cube" by Simon Johnson and Bereshad Nonas): ...
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1answer
53 views

Events effect on intraday volatility and large outliers

I have an event that takes place over a period of a few days, and I want to estimate the effect it has on market volatility using intraday data with one minute frequency. The problem is, that e.g. ...
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58 views

Higher moments arbitrage

Is there concrete evidence that statistical arbitrage (historical vs. implied) on higher moments, specifically skewness and kurtosis, can be (significantly) done? Working from this source, the author ...
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3answers
221 views

Why is volatility said to be persistent?

Persistence in volatility of stock returns is one of the common 'stylized facts' when it comes to analyzing time series. However, I am wondering for theoretical arguments why (estimated) volatility ...
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1answer
76 views

Master thesis in Finance in search of topic concerning investor sentiment and financial crash

Is there any good idea that combines low volatility, risk aversion level of investors and prediction of financial crash ? Is there any literature?
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1answer
134 views

Find call and put volatilities using ATM, Risk reversal and Butterflies volatilities

I have to plot the implied volatility surface for EUR/USD. So, my goal is to produce something like that, from put delta 10 to call delta 10: Searching for informations, I found that I could find ...
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2answers
68 views

Intraday Volatility over multiple timezones

I'm in the Europe/Berlin Timezone and I need to calculate a global volatility indication Monday to Friday at 12:00. My portfolio can somewhat accurately represented by 60/30/10 S&P500, ...
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3answers
149 views

Evaluation of portfolio other than Sharpe Ratio

Is Sharpe ratio always the best way to evaluate a portfolio? I'm not really sure what this potential interview question wants me to answer. I have read that Sharpe ratio essentially explains how ...
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1answer
64 views

What is the formula that determines when VIX futures expire?

Or a source that will allow me to just get the list of dates into a program, I'm trying to do this in python but I want it to be able to figure out the next expiration automatically, or something like ...
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47 views

Delta of an option in two cases

Let C be the prime of a call in fi=unction of the price in term F, Strike K, volatilité $\sigma$ and maturity t: $C(F,K,\sigma,t,r) $ We assume that we know $\delta$ ...
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1answer
85 views

How to determine volatility for private company for Black-Scholes

I am trying to determine the volatility to use Black-Scholes to value some warrants for a private company. Very few comps are public or they are large diversified businesses. Any thoughts on how to ...
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3answers
133 views

Appropriate measure of risk if return are not normally distributed

Normally standard deviation of an assets is used as an proxy for the risk in the financial market. In reality distribution of return is more peaked at the center and higher mass in the tail as ...
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120 views

Historical volatility on bloomberg API

Is there a way to obtain the historical volatility of a stock from the bloomberg API? I would be looking for the data in the HVT table. Actually 3-months historical volatility from now would be ...
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1answer
84 views

Approximation of an option price

The value of an option in the money is 11.50 Euros. The parameters of the market are: -The price of the underlying stock: 81.4 Euros. -The volatility ofthe underlying is : 34.65 % The ...
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1answer
134 views

Libor Market Model Calibration

Currently I am doing a research on the plain vanilla multi-curve framework Libor Market Model meaning that no stochastic volatility is involved. I had the idea to calibrate to the swaption market. In ...
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1answer
105 views

RiskMetrics VaR Volatility Sample Size

RiskMetrics calculates volatility using an exponentially weighted moving average. For a decay factor of 0.94, they advise a sample size of 74 past returns. Does this mean the entire calculation should ...
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21 views

How to appropriately measure volatility in assets with different execution dates?

Let's say I have two assets and I am hedging them with going short on two other assets. Let's say that asset 1 is expected to expire in one day and asset two is expected to expire in two days. Let's ...
2
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1answer
91 views

VEC GARCH (1,1) for 4 time series

I have to estimate a VEC GARCH(1,1) model in R. I already tried rmgarch, fGarch, ccgarch, mgarch, tsDyn. Has somebody estimated a model like that? ...
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1answer
51 views

Integrated volatility

Can someone give me an explanation of what integrated volatility is (and possibly why it is preferred) versus a standard measure of volatility eg variance?
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1answer
46 views

Historical volatility from non-uniform samples

The way I compute historical volatility is that I take two parameters $dt$ and $T$, get a list of stock prices with the step of $dt$ over the window $T$ (so $T/dt+1$ samples in total), compute $T/dt$ ...
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2answers
129 views

Which volatility to use?

For calculating the greeks http://www.vollib.org/html/apidoc/vollib.black.greeks.html Should I use historical volatility or implied volatility?
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1answer
50 views

Volatility of monthly performances, where the last month is short

I'd like to calculate the vol of a return series of, say, 25 months. However, the last of those months is not completed yet. The last data point only refers to the first 21 days of the month (say, ...
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2answers
153 views

Constructing a minute-by-minute volatility curve

For market making in front month vanilla commodity options we need a volatility curve that updates every second or so as the underlying and the options change prices. If all the strikes have a good ...
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1answer
56 views

Is there any package in R for conditional autoregressive range model (CARR)?

I am working on a project which requires volatility estimation using range based volatility. Is there any package in R which helps me in estimating the CARR model proposed by Chou (2005).
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1answer
187 views

VXV vs. VIX futures: arbitrage opportunities?

At a first glance, VXV and VIX futures should not be compared at all: VXV is an underlying index, whilst VIX futures are derivatives written on a different underlying index, that is, VIX. As ...
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2answers
115 views

Estimation of annualized volatility depending on data frequency - exceptions to the general rule?

From my understanding, the annualized standard deviation of daily returns is generally higher than of annualized standard deviation of weekly returns is generally higher than.... ...
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30 views

Could VVIX and HYspread combined make for a SPX trade signal?

assumption 1: if there is no excess liquidity, then prices of equities cannot rise assumption 2: if there is "sufficient" excess liquidity, then whether prices of equities rise, stay put, fall depends ...
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2answers
85 views

Volatility of EUR/USD: is this correct?

Let x be the closeBid price of EUR/USD, sampled every 5 minutes during year 2015 (historical data). This is the variation (is it ...
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6answers
215 views

Intuitively speaking, why do at the money options have no volga/convexity?

I was wondering if someone could give me an intuitive explanation as to why the vega of at the money options doesn't increase with volatility. I've seen some mathematical explanations showing the ...
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332 views

Why is there a stong intraday-correlation between spot and vol?

Fig.1 shows an intraday scatterplot of the DAX future against its volatility index VDAX on 6-Jan-2016. The data suggest a strong negative correlation between the two. There are various models ...
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1answer
61 views

Estimating volatility from high frequency price volume data of multiple stocks

I have price volume data of five stocks, sampled at 1 minute interval for six months. The data is quite noisy, lots of missing data and also some weired spikes. Can someone suggest me how to clean ...