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

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4
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2answers
231 views

HFT to blame for Flash Crashes?

Some people 1, 2, 3 claim that High Frequency Trading is partly to blame for the extreme volatilities in the markets yesterday (24. August 2015). Is that true? Is the amount HFTs move even enough ...
0
votes
2answers
115 views

How to handle currency change in exchange rate volatility measurement

I am trying to measure exchange rate volatility in some countries and I am using their currencies against euro. Problem is that one of them is Slovakia which has changed the currency in 2009 from ...
0
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0answers
38 views

GARCH filtering and extreme value theory

We are evaluating a model for risk management based on extreme value theory using peaks over threshold and markov chain monte carlo methods. In doing this, we are firstly fitting a GARCH (we have ...
1
vote
1answer
42 views

How to measure the volatility of illiquid bond with no historical prices

The basket of corporate bonds that I am following barely traded after the issuance. Hence, there is no historical data to estimate the volatility. Can you suggest me a different approach to come up ...
5
votes
1answer
134 views

How to calibrate a volatility surface using SVI

I've read the following paper by Gatheral and Jacquier and have several question regarding the calibration of a volatility surface in a arbitrage free way and some theoretical aspects. Let me first ...
0
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0answers
31 views

2-step estimation of DCC GARCH model in Python

Embedded in this thread are multiple questions. I'm currently im the process of implementing a DCC GARCH forecast model on quantopian (a python-powered trading platform). The two step consists of ...
2
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1answer
104 views

Ideas about Stochastic volatility models

I am currently working on comparing different models for modelling the volatility and then pricing vanilla options (I use option prices on real stocks in order to calibrate my models and then I ...
0
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0answers
33 views

GARCH estimation does not work, error in my returns?

Hey everyone and I hope that there are some smarter people out here that can help me out with my problem...: I have trouble with my implementation of a GARCH(1,1) model and I do not know how to move ...
0
votes
1answer
60 views

Realized Volatility vs. Standard deviation of log returns

I am interested in calculating high frequency 5-minute intraday volatility. I am going to use the standard Realized volatility which is the square root of the sum of squared log returns. Given X is ...
3
votes
0answers
134 views

Log-normal mixture models for implied volatility

My question is about a the proof that can be found in the following article by Brigo et al. https://people.kth.se/~lang/arkiv/finans/exjobb/anton/lognsmil.pdf The main definitions and formulas need ...
3
votes
1answer
280 views

Is volatility for the next day forecastable? To any extent?

In a more general way: is there 1) a methodological approach to quantify the correctness of a model that produces a probability distribution for the, say, S&P 500 index return for the next ...
5
votes
1answer
139 views

How is implied volatility derived?

How to compute Implied Volatility Calculation? The above link shows that there multiple ways to calculate implied volatility. My question is that for most of the common data sources like Bloomberg, ...
4
votes
1answer
160 views

Calculating 6-minute, 20-minute, 45-minute, and 3-hour volatility

I am looking to measure the volatility from the open of the market until a trade takes place and use that volatility in post-trade regressions to help explain transaction costs. A simple regression ...
0
votes
1answer
35 views

Interpreting and scaling of Realized Variance with sample data

I have some question about realized variance(RV) and I have some sample prices below to work with. You can run the R code below to build a vector of log returns. Three are 78 5-minute buckets in a ...
0
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0answers
41 views

Estimate volatility in forecast

I have a model with a rolling forecast. In each time step $t$, I predict the price for the next periods, e.g. $\hat{p}(t, t+1)$ and $\hat{p}(t, t+2)$. If I start in $t=0$ and arrive at $t=2$, I ...
0
votes
1answer
67 views

Garch models and assumption of stationarity ?

I found big inconsistency in the GARCH models and their underlying assumption of stationarity. GARCH models require that data must be stationary, where stationary means both mean and variance are ...
2
votes
3answers
139 views

Intuitive Explanation for Volatility Smile for Equity

I am trying to understand the intuitive reasoning for why volatility is more for deep OTM/ITM put/call then ATM..(why Simles for equity) Why ATM will not have more volatility as deep OTM/ITM option ...
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votes
2answers
41 views

Approximating the IV of an underlying from Individual Options IV

Is it possible to get a calculation of IV from the volatility on components of the options chain? EG I have this data: ...
2
votes
2answers
133 views

How to interpret Realized Volatility and TSRV using R

I am looking at some high frequency data and I would like to know how to interpret and compare Realized volatility (RV) and Two Scale Realized Volatility (TSRV). References below. Given X is the log ...
0
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0answers
86 views

Monte Carlo, convexity and Risk-Neutral ZCB Pricing

I've built a simplistic Excel monte carlo model to price a zero-coupon bond, but it came up with a slightly unepxected result so I wanted to confirm whether my maths is just a little rusty or my model ...
2
votes
1answer
173 views

How to adapt a Moving Average period to market conditions?

I would like to know if there is some way to adapt the period of a moving average to market conditions like for instance the stop loss can be adapted to market conditions using the average true range. ...
8
votes
2answers
369 views

GARCH model, expectation of volatility?

Consider a time series $\{r_t\}$ following a standard GARCH(1,1) model, i.e., $$ r_t = \sigma_t \epsilon_t,$$ where $\epsilon_t \sim N(0,1)$ and are i.i.d, and $$\sigma_t^2 = \omega + \alpha_1 ...
3
votes
2answers
51 views

Implied volatility and nonconstant volatility

John Hull states in his text that "AS the maturity of the option is increases the percentage impact of nonconstant volatility on (option) prices becomes more pronounced, but its percentage impact on ...
4
votes
1answer
71 views

volatility factor

I am trying to add a volatility factor to Fama-French factor model. Does anybody know of a source where I can get data for "volatility mimicking factor" or suggest a simple methodology for ...
2
votes
1answer
80 views

Options on Volatility Control Index

I have two question. Does an option on volatility control index exist? If I google it, it seems like there is such an option, but I can't find the option on any of exchanges. So this is my first ...
19
votes
2answers
1k views

Have Goldman Sachs Quantitative Strategies Research Notes been published as a book or a comprehensive collection?

Back in the 90's, Goldman Sachs (publicly?) released a series called "Quantitative Strategies Research Notes" — mostly technical papers on topic. Emanuel Derman co-authored almost all of them. Some ...
2
votes
1answer
110 views

How to use calibrated Standard Stochastic Volatility?

I'm considering the standard stochastic volatility model: $$x_t = \rho x_{t-1} + \sigma \epsilon_x$$ $$y_t = \beta \exp\left[ \frac{x_t}{2} \right] \epsilon_y$$ where $y_t$ is the log-returns and ...
2
votes
2answers
64 views

Measuring Volatility from Execution Prices

I was told of a way of measuring the volatility of a stock by looking at the reported execution prices (from Level III or Level II data.) I'm well aware of how to measure volatility by looking at the ...
0
votes
1answer
59 views

FX Portfolio Volatility Targeting

If I have 3 different currency trades (ex short EURSEK, short NZDUSD, long USDJPY), how do I size each trade if I wish to allocate risk equally in order to target a 12% portfolio volatility (allowing ...
0
votes
1answer
118 views

Looking for a definition of financial entropy

In Science, Entropy is generally considered to be the irreversibility of stuff. Google defines entropy as: lack of order or predictability; gradual decline into disorder The 'gradual decline in ...
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0answers
26 views

Return volatility or Price Volatility [duplicate]

Which is a better method to calculate volatility - Price variance or return variace or is it subjective to the use of volatility figure?
0
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2answers
144 views

Calculate the realised volatility from a time series

Does anybody know how to calculate the realised volatility from a series for a certain time frame? For example, I am looking at 5 days, 21 days, 63 days, 126 days and 253 days. thanks
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votes
1answer
69 views

Constant decreasing volatility, GARCH forecasting

I am trying to forecast the volatility using GARCH modelling in R. I fit an ARMA(1,1)-GARCH(1,1) model, but my sigma predictions are constantly decreasing. Anybody know why? ...
0
votes
2answers
87 views

Uses of Volatility models

I'm reading about volatility analysis here http://vlab.stern.nyu.edu/doc?topic=mdls. There are many variations of GARCH. My question is: rather than trial-and-error approach, is there any systematic ...
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0answers
40 views

Realized Volatility: errors correlation

When using Realized Volatility (sum of squared intraday returns) to estimate volatility, following the model: $$r_t = \sigma_t \epsilon_t $$ where $\sigma^2_t$ is the volatility at time $t$ and ...
2
votes
1answer
73 views

Effect of volatility on the delta of a call option

In the book 'Dynamic Hedging', Nassim Taleb writes: ...
2
votes
0answers
49 views

How to compute/find the volatility of an index like the S&P 500 to be used to control risk exposure? [closed]

I've asked two related questions. First this one on the money stack exchange and this one on the math stack exchange. But have not yet found a complete answer. Given an index such as the S&P ...
1
vote
0answers
31 views

Relation between Parkinson number and historical volatility

In his book 'Dynamic Hedging', Nassim Taleb gives the relation: P = 1.67*historical volatility, where P is the Parkinson number. What is the basis of this relationship. Does this hold under special ...
3
votes
0answers
87 views

How can a beginner trader make use of 'volatility of volatility'

For a beginner option trader in equity options, how can he use this metric that is provided by his broker/data vendor? How can he use this metric to gain an added understanding of the option ...
5
votes
1answer
150 views

Variance replication using options

I would like to understand the intuition behind the following question: Why a certain weighted sum of prices of put and calls is equivalent to the implied variance of an underlying? A variance swap ...
2
votes
1answer
132 views

Mean reversion time estimation

I am new to mean reversion trading, and I would like to get some good references about how to estimate the time it takes to a mean reverting process to cross its long term mean.
0
votes
1answer
53 views

Portfolio volatility

Problem True or fale? The stock of a firm has an expected return of 10%, and a volatility of 10%. The weight of the stock in a portfolio is 5%, and the correlation of the stock’s return with the ...
4
votes
3answers
238 views

Negative high frequency intraday volatility - Zhou estimator

To estimate high frequency tick data stock intraday volatility, I have read Robert Almgren's notes7.pdf http://www.cims.nyu.edu/~almgren/timeseries/notes7.pdf where he talks about the bias free ...
0
votes
0answers
81 views

High frequency price forecast model ARMA GARCH or another?

Can you reccomend model for high frequency data (1 second and less) (returns and volatility forecasting)? Most papers use ARMA, GARCH etc in 1 minute and lower time frame. PROBLEM ARMA does not know ...
1
vote
2answers
112 views

A good way to calculate the realised daily volatility

Currently, I am confused about the calculation of realised daily volatility. Assume I have daily returns, for example, FTSE, then I need to estimate the daily realised volatility. I read some ...
0
votes
1answer
70 views

Volume or Volatility?

I've recently been given a project which came with some documentation. In this documentation is a bullet point that reads: Liquidity Risk in Equity, Credit and Vol I'm unsure as to whether vol is ...
0
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0answers
62 views

Cointegration and variance of time series

Given that $X_t , Y_t$ are two cointegrated random processes, what can we say about the relationship between variance of the two increments $var(X_{t+h}-X_t)$ , $var(Y_{t+h}-Y_t)$ for a given ...
0
votes
2answers
75 views

Short Volatility [closed]

Being net short options is an obvious case of being short volatility. But what other investments are "functionally" short volatility? Is long equities long or short volatility? Is short Apple long or ...
1
vote
3answers
126 views

Direct use of implied volatility

I am not sure to understand exactly the direct use of implied volatility. Let's take an example: if an instrument has a daily volatility of $\sigma$, there is a 68% probability that its value will be ...
4
votes
1answer
343 views

Moving window forecasting in Python

I am looking to create some code that will out-of-sample forecast the HAR-RV model. The model itself is formulated as the following, and the betas are estimated through HAC-OLS or Newey-West. ...