Tagged Questions

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

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1answer
5 views

what volatility do we calculate using GARCH model

what volatility do we calculate using GARCH model, Historical vol or Implied vol or Future Vol or Actual vol.
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1answer
32 views

Is the volatility for these two SDEs the same

$$ \ \ d\left(\frac{1}{S_t}\right) =\frac{1}{S_t}\left(\sigma^2-r\right)dt +\frac{1}{S_t}\sigma dW_t $$ and $$ \ \ dS_t = S_t rdt + \sigma S_t dW_t $$ How can you prove that?
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1answer
47 views

What math concepts are used in designing volatility models

What topics in statistics and mathematics do I need to understand thoroughly before I can start to dabble with stochastic volatility models and volatility arbitrage?
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0answers
31 views

volatility grouping

I was working on risk levels of a combined portolfio (includes options,futures as well as stock). While using greeks we can asses some value of a portolio, but when one needs to assess some kind of ...
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1answer
45 views

Is the price of a binary call not monotonous with vol for OTM

Is this true and how would you prove it
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2answers
96 views

Is there a better way to price options than with historical volatility?

I know that annualized historical volatility calculated with closing prices is a much rougher estimate than implied volatility for the correct "volatility" parameter in options pricing models. ...
1
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1answer
29 views

Risk-free arbitrage given a volume oracle?

Given a magical oracle who can correctly predict the volume, but not the price, of a given security, does there exist a risk-free arbitrage to capitalize on this information?
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0answers
31 views

Vanna-Volga method to infer vol surface with just few realtime tick data

My broker gives me the opportunity to get realtime tick data for up to 50 fields. Since I would like to monitor option chains, this amount of data is very limited. Suppose I am interested in ...
0
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1answer
26 views

Normal vol - convention

apologies for the simplicity of the question, but I was wondering: what is the quoting convention for normal (bps) volatility? Say I have the following time series of data: Date Close Abs Change ...
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0answers
16 views

Residual maturity vol

The following question is probably (from a practical point of view) more relevant for EM markets which typically exhibit a more pronounced forward volatility compared to spot volatility. Say I buy a ...
2
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3answers
111 views

Relationship between Beta and Standard Deviation

I was doing some financial analysis on two firms in the coffee industry. After calculating Beta and Standard Deviation for both firms, I seem to have stumbled on some weird phenomenon. It appears ...
0
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1answer
75 views

Where can I find a list of market-moving news announcements for different asset classes?

Different asset classes have different important news announcements that move the markets intraday. For instance, oil volatility increases after the EIA Petroleum Status Report, but that announcement ...
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0answers
24 views

How to compare the volatility of quarterly p&l of two firms in the same sector?

I want to compare the volatility of the historical quarterly profit and loss data of two or more firms operating in the same sector and determine whether the volatility of p&l of these firms is ...
2
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1answer
93 views

Is there a way to adjust R PerformanceAnalytics function VaR with EWMA or GARCH method?

Is there a way to upgrade R PerformanceAnalytics function VaR with more risk sensitive approaches like EWMA or GARCH? Or is there another R package which can handle the issue?
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1answer
101 views

HAR-RV, realized GARCH and HEAVY model for realized volatility

I don't have much experience with volatility modeling using intraday data but I'm in the process of collecting 5mins data. Currently I have ~6 months of data. Is it enough to use these models with ...
0
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3answers
107 views

What makes investors risk averse?

There are some regularly-occuring events that coincide with a rise in the implied volatility of an asset. For example, in advance of an firm's annual earnings report, it is typically expensive to buy ...
0
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1answer
73 views

Constructing Volatility Smile from Implied Volatility & Delta

I have implied volatility data for call and put options (expiring in 1 month from any given date) for a particular stock. In addition, I have the delta for the options. However, I have no information ...
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0answers
46 views

Fixed volatility portfolio with max returns creates skewed results

I am trying to create a portfolio of only four components using the mean-variance optimization (MVO). I am setting up my problem such that I want to maximize the expected returns with a fixed vol ...
4
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1answer
98 views

Nested volatility

The introduction VIX options makes the concept of "volatility of volatility" a real life concept. The idea of "nested volatility" seems interesting, and I am wondering if there are any academic ...
2
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2answers
241 views

How to classify stocks by their volatility?

I would like to hear other possible ways of classifying Stocks by the Volatility of their returns. Assuming that I want to characterize each stock as Low, Medium or High Volatility Stock and assuming ...
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2answers
129 views

Approximation of different volatilities

Suppose I model the forward swap rate lognormal $$dS_t = \sigma_{ln}S_tdW_t$$ On the other hand we could model it simply by a normal assumption: $$dS_t = \sigma_{n}dW_t$$ I would like to know if ...
0
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1answer
112 views

Probability of stock closing over a certain price

A stock has beta of 2.0 and stock specific daily volatility of 0.02. Suppose that yesterday's closing price was 100 and today the market goes up by 1%. What's the probability of today's closing price ...
2
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1answer
145 views

Volatility of Futures

Apparently: Under a constant interest rate, the futures price is given by a deterministic time function times the asset price (I think I understand this). This means that the volatility of the ...
2
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0answers
36 views

Testing for the presence of a positive or negative gamma effect

I am currently analyzing a statistic that I believe will have the effect of hedgers having a positive or negative gamma position in certain stocks. In the case where I believe hedgers have positive ...
1
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1answer
240 views

How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
2
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1answer
163 views

How to Calculate Confidence Intervals for Moving Averages Given Nonindependence?

I've plotted 30-year moving averages across time for a couple of portfolios, and I was wondering how to calculate a 95% CI for the these moving average data (i.e., across all moving average data ...
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2answers
209 views

How to calculate the volatility matrix with multiple stocks

calculating the volatility for a single stock is straightforward. However, I'm not sure whether my approach for calculating the volatility matrix for multiple stocks is correct: I assume a log-normal ...
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0answers
99 views

Models for volatility estimation of high frequency data?

I have read on several news articles and research papers, "Contrary to popular belief, high frequency trading reduces volatility in stock markets rather than exacerbates it". Do you know the models ...
3
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2answers
125 views

Cross-sectional volatility vs temporal volatility

Volatility is usually defined as the standard deviation of returns, but sometimes it is calculated as the standard deviation of cross-sectional return divided by the square root of time, where other ...
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0answers
55 views

Negative Risky vs Negative Butterfly

I understand that in regard to FX options, a volatility smile with negative Risk Reversals is effectively indicating that the spot market for a given currency pair is in decline (puts over). In ...
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0answers
67 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
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2answers
159 views

2 stocks, no shorting vs shorting. (concrete questions, mean-variance)

I'd appreciate help with the following questions. Suppose there are two stocks $A$ and $B$ with expected returns $E_A, E_B >0$ and volatilities $v_A, v_B >0$, respectively . Also, suppose ...
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0answers
54 views

commodity futures pricing vs. underlying spot rates in volatile markets, at depth of book

Are futures contracts or their underlying spot rates, more or less efficient, at depth of market, with volatility? Say for example we have: 1 E7 (CME contract) = 62,500 euro Should the future or ...
0
votes
1answer
32 views

Common point between IR and Vol option pricing models?

What is the common point between pricing models on options on Interest Rates and options on Volatility?
3
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5answers
138 views

economic facts that causes the financial time series to be heavy tailed

When reading a tutorail on extreme value theory, I once meet the following claim ...
5
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1answer
338 views

Regime-Switching Model for detecting market shifts

I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading. Academia has long discussed this topic in-depth, such as using Regime Switching ...
2
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1answer
90 views

Swaptions vol trading lognormally

What does this mean: "Front-end vols have been trading lognormally while longer tails have traded normally." I read this in a research report, in the context of ...
0
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2answers
210 views

Beta of FTSE100 stocks against benchmark index FTSE100

first post so if I write something silly don't hold it against me. I calculated beta for almost all the stocks that compose the FTSE100. All have beta < 1. This, as far as I understand it, means ...
2
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2answers
127 views

Understanding the conditioning in a GARCH process

In a GARCH model like the following $$y_t=\sigma_tz_t,\\ \sigma_t^2=\omega(1-\alpha-\beta)+\alpha y_{t-1}^2+\beta \sigma_{t-1}^2$$ where $z_t$ is assumed to be iidN(0,1), we say that conditional on ...
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1answer
98 views

Controling ex-post volatility by ex-ante limits

In the context of mutual funds the KID directive forces us to calculate 5 year ex-post volatility of a (market) fund (weekly returns). Thus each week we look back in the past and calculate volatility ...
3
votes
1answer
237 views

Why parameterize the Black Scholes implied volatility surface?

I know that SVI volatility surfaces are very popular among financial practitioners. I understand that this is not really a model for some underlying asset (such as Black Scholes, Heston etc.) but ...
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4answers
764 views

Why is the VIX futures market usually in a state of contango?

I'm a VIX newbie and I'm trying to understand why the VIX futures market is usually in a state of contango. All I can figure is that the sellers of VIX futures contracts demand high "prices" (because ...
1
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2answers
72 views

Standard Deviation as listed in Rebonato's Volatility and Correlation: Binomial Replication 2.3.4 Worked-Out Example

I am reading Rebonato's Volatility and Correlation (2nd Edition) and I think it's a great book. I'm having difficulty trying to derive a formula he used that he described as the expression for ...
4
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0answers
114 views

Calculating volatility of inhomogeneous time series

I am reading an article by Zumbach and Müller whose name is Operators on Inhomogeneous Time Series. This is interesting in general, but my main goal is to learn a good and efficient method to ...
1
vote
1answer
106 views

Volatility of Option

I hope I'm asking this at the right place. This pertains to actuarial exam MFE/3F on Financial Economics. If $\sigma$ is "volatility" and $\Omega$ the elasticity of the stock, one formula that is ...
1
vote
1answer
117 views

Interpolation of volatility curve for Swaption

I have found volatility in the black model for swaption for different maturity (1-2-3-6-9M, 1Y, 18M, 2-10Y, 15-20-25-30Y) and Tenor (1-10Y, 15-20-25-30Y). Now I need another values (Maturity: 2, ...
3
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1answer
245 views

What exactly is the OIS Black VOL?

While poking around in Bloomberg I stumbled upon the following data set: EUR SWPT BVOL OIS for various maturities. Obviously OIS must suggest OIS-discounting but how is it related to the ...
0
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0answers
56 views

Volatility clustering but (G)ARCH not good fit

I'm looking at a time series that appears to be white noise. The ACF/PACF are in the test bounds. Applying the Ljung-Box test for various (maximum) lags gives me high p-values (i. e. I cannot reject ...
1
vote
1answer
311 views

What is the equation for Garman-Klass volatility?

I want to calculate realized/historical volatility for the underlying products of various options using the Garman-Klass estimator, but I can't see to find an equation, although I know it involves ...
2
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1answer
96 views

Asset volatility in Merton model

I am currently working on my thesis where I discuss the Merton default probability model. I have a huge sample of US firms for the period 1990-2010. I use both numerical and complex iterative approach ...