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

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1answer
100 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? ...
5
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1answer
157 views

DCC GARCH - Specificating of ARCH and GARCH parameter Matrices STATA

The command in STATA to calculate the DCC model of two variables is: mgarch dcc ( x1 x2=, noconstant) , arch(1) garch(1) distribution(t) $$ \begin{bmatrix} ...
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1answer
56 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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28 views

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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0answers
55 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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4answers
543 views

Trading spot volatility

I am reading a paper that very briefly talks about some volatility arbitrage strategies. It's so brief that I do not exactly understand how it works. It says one of the strategy is based on "short ...
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0answers
40 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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0answers
36 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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0answers
40 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
62 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 ...
3
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2answers
89 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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0answers
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
76 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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0answers
48 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 ...
0
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2answers
116 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.... ...
1
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1answer
187 views

BEKK - GARCH model in Stata

Is it possible to run BEKK-GARCH in Stata? mgarch is of a different model type and google provide me with no good hints.
0
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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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0answers
54 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 ...
6
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2answers
7k views

What is the “leverage effect” for stocks?

I've read the so-called "leverage-effect" for stocks models the fact that if a company is leveraged, its volatility should increase as the stock price moves lower and closer to the level of debt. Can ...
9
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2answers
3k views

SPX options vs VIX futures trading

Forward volatility implied by SPX options, and that of VIX futures get out of line. If there existed VIX SQUARED futures they could easily be replicated (and arbitraged) with a strip of SPX options. ...
0
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0answers
52 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 ...
7
votes
3answers
195 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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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 ...
4
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1answer
137 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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0answers
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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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.
3
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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 ...
2
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3answers
418 views

How to predict daily range of forex?

I am trying to predict the intraday moving range of stock/forex (essentially, high-low). Here are some ideas based on what I've been reading recently (do not have quant background, so basic level of ...
4
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1answer
79 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): ...
2
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4answers
10k 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 ...
4
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1answer
85 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 ...
4
votes
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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7answers
17k views

How to calculate historical intraday volatility?

Sorry for what must be a beginner question, but when I went to write code I realized I didn't understand exactly how historical volatility, or statistical volatility, is defined. Wikipedia tells me ...
2
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1answer
90 views

GJR-GARCH with $\alpha = 0$ as parameter estimate

I am estimating a GJR-GARCH(1,1) model with variance targeting in R. As data I am using returns on some stock indices. While calculating the GARCH models I obtain $\alpha=0$ for some indices. From ...
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1answer
54 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. ...
8
votes
3answers
222 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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0answers
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 ...
9
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3answers
367 views

Historical Volatility vs Implied Volatility Performance in Pricing Options

I consistently read on academic papers, when pricing options, using implied volatility is better than using historical volatility. Because, market is more "forward-looking" and historical data is ...
4
votes
1answer
573 views

How to calculate implied volatility smile of basket using correlations?

For a basket, the realized volatility can be calculated using: $$\sqrt{\sigma_1^2 + \sigma_2^2 + 2 \sigma_1 \sigma_2 \rho}$$ If I have the volatility surface of two underlyings S1,S2 (strike space). ...
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3answers
150 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 ...
0
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1answer
56 views

CCC-Garch predict

So I'm trying to measure the VaR of 2 stock with a multivariate GARCH model, so im using the CCC model. I need to predict the standard-diviation and the mean but the ...
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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?
4
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2answers
156 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 ...
6
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1answer
1k views

Problems with dealing with GARCH models and intra-day data

A Short question would be "Which type of model from GARCH family is most suitable for modeling 5-minute data returns ?" but I've added some story to it. A Long time ago I was preparing my thesis, one ...
3
votes
1answer
136 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 ...
4
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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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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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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 ...
0
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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 ...
0
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1answer
88 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 ...