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

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3
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6answers
202 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 ...
8
votes
3answers
315 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 ...
0
votes
0answers
29 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 ...
0
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2answers
82 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 ...
2
votes
1answer
59 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 ...
2
votes
4answers
79 views

Do stocks move up and down in value or in proportion to how much they cost?

Do stocks change in value or in proportion to how much they cost? If a stock costs 100 dollar will it generally change value at the same rate as a 700 dollar stock (IE: both will move about 2 dollars ...
4
votes
1answer
218 views

Fitting a non linear AR + GARCH(1,1)-M model

I want to fit the following model to a time series: $$ y_{t}=\alpha_{0}+\alpha_{1}y_{t-1}+\alpha_{2}y_{t-1}^{2}+\lambda h_{t}+\varepsilon_{t} $$ $$ ...
5
votes
2answers
184 views

How to derive this approximation of the risk-neutral expectation of the variance?

On the paper Bollerslev, Tauchen and Zhou (2009 RFS) the authors say about equation (15): The corresponding model implied risk-neutral conditional expectation ...
1
vote
1answer
49 views

impact model what volatility to use

I am looking at the market impact paper here (http://www.cims.nyu.edu/~almgren/papers/costestim.pdf) and I had a question about volatility on page 11. On page 11 it is stated: "For volatility, we use ...
9
votes
2answers
1k views

Risk Budgets with Target Portfolio Volatility

I'm working through the implementation of a risk budgeting approach as described in the recent Roncalli paper. The idea is that the portfolio manager sets a contribution of total portfolio volatility ...
0
votes
2answers
50 views

Black Scholes Implied Volatility -> Put call parity

The theory says that the put and call with the same maturity and strike have the same volatility. I have been resolving the Black Scholes equation after IV using equity and fx market data and I can ...
1
vote
1answer
76 views

how to do interpolation in the term structure of volatility surface?

everyone~ I am a newbee in the quantitative finance and I meet a problem in working out an equity option volatility surface. We use the reasonable market data to derive the implied volatility, then ...
0
votes
1answer
30 views

Calculating Volatility Parameter using Closing Prices [closed]

Say you have 3 closing prices... 101 100 102 How would one calculate the standard volatility parameter using these values? I am quite confused, it seems simple enough though.
1
vote
2answers
126 views

Which one is best Performance evaluation measures?

I want to compare the performance of various volatility models like GARCH, eGARCH, and gjrGARCH from actual volatility(computed using high frequency data). I found 3 common performance evaluation ...
9
votes
3answers
315 views

Why do volatility and correlation increase in times of crisis?

can somebody please explain to me why volatility and correlation increase in times of crisis? It is connected somehow to the herding effect. But I cannot really explain it. And also why are negative ...
2
votes
0answers
44 views

When to use SV or a GARCH model

So i have been searching for this answer for a question if there is a rule or something that would say when to use GARCH type model or use an stochastic volatility model to predict the volatility of ...
9
votes
1answer
133 views

Estimate Beta of CAPM from Implied Volatility?

In the CAPM theory Beta of asset $i$ are estimated in this way: $ \beta_i = \frac{\sigma_{im}}{\sigma^2_m} $ where $\sigma_{im} = \rho_{im} \sigma_i \sigma_m$ But all these data are historical data. ...
0
votes
0answers
38 views

Impulse response function interpretation

I would need a quick help with Impulse response function interpretation which I have done after Vector autoregression model in stata. I need to understand how to interpret IRF graph or table values ...
6
votes
1answer
197 views

Density forecast of a GARCH model

I am currently working on developing a series of density forecasts and I am encountering some problems. I am working on weekly S&P 500 returns and the returns process is described as $r_{t} = ...
0
votes
1answer
93 views

How do I track implied volatility of specific delta?

I'm a newbie with respects to volatility trading and options. I recently purchased a book on the topic called "Trading Implied Volatility -An introduction" by Simon Gleadall. It's been one of the most ...
2
votes
1answer
138 views

Volatility Surface Constituents, do's and dont's

Recently I have been working a lot with implied volatility and volatility surfaces. The basic idea is easy to follow: 1) Gather market prices of options at different (Strike,Expiry) 2) Calculate ...
0
votes
1answer
62 views

pricing with implied volatility surface

I am a newbee in Quantive finance. supposing I calibrate a smoothing implied volatility surface with cubic spline now. A minute later I want to price K=100,t=1 option, can I just find the point on ...
0
votes
1answer
37 views

volatility skew for lognormal model is flat?

Does anyone know why the volatility skew for lognormal model, such as BK, should be a flat line, meaning that implied black volatility for options will be same for those with different strike prices? ...
1
vote
1answer
62 views

MSRV estimation in R

What are the R packages that let you estimate Multi Scale Realized Volatility (MSRV)? So far I've only found highfrequency (which comes with Realized Kernel as well), but from what I understand it ...
2
votes
1answer
221 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 ...
2
votes
2answers
103 views

Calibrating stochastic volatility model from price history (not option prices)

For stochastic volatility models like Heston, it seems like the standard approach is to calibrate the models from option prices. This seems a bit like a chicken and an egg problem -- wouldn't we ...
2
votes
1answer
385 views

Value at Risk from Delta of a single asset portfolio

I am trying to figure out the following, for me unfamiliar type of question: Given is a single asset portfolio: the Delta of the portfolio is 15, the value of the asset is 10 and the daily volatility ...
1
vote
0answers
73 views

Comparing Implied Vol. to Historical Vol. using intraday data

I'm interested in estimating what my profit/loss would be for continuously gamma scalping a delta hedged option over the course of one day, using historical intra-day price data. I found an equation ...
1
vote
0answers
42 views

Motivation for hedging volatility using VIX ETNs

i wondered what the motivation for professional investors could be to engage in VIX ETNs. Would they even think about trading this kind of product? (they normally should have access to VIX options, ...
0
votes
0answers
34 views

Lambda in RiskMetrics for fixed income

What is the default lambda proposed in RiskMetrics for fixed income?
1
vote
2answers
95 views

Smoothing factor of Exponential Moving Average

I'm trying to implement an Exponential Moving Average indicator, but I'm sort of stuck on the smoothing factor. What I've come up with: $$\frac{1}{N}\sum\limits_{k=0}^N \alpha^{k} P_k$$ Where N is ...
2
votes
1answer
274 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 ...
0
votes
0answers
32 views

Integrated Volatility in Diffusion Processes vs Volatility of Discrete Processes

In a Diffusion Process of the form $$dX_t = \mu(X_t)dt + \sigma(X_t)dW_t $$ the Integrated Volatility is defined as $$IV_t = \int_t^{t+1} \sigma^2(X_s)ds.$$ In this case, the Integrated Volatilty ...
8
votes
3answers
632 views

Is the price of European put option monotone in volatility if we replace BM in Black-Scholes with a general Levy process?

Under the Black-Scholes model, we have the European put option is $\mathbb{E} [e^{-rt}(K-S_t)]$, where we take $\log(S_t)=X_t$ and $dX_t= \sigma dW_t - \dfrac{1}{2}\sigma^2 dt + rdt$. Here the option ...
2
votes
0answers
45 views

OHLC Covarianc Estimation

Is there an R package which can estimate a covariance matrix using OHLC (Open/High/Low/Close) share prices for upwards of 40 shares using the Yang & Zhang method using daily data? I google ...
3
votes
2answers
401 views

how do we know if the volatility which is quoted in market is Normal (Bachelier model) or log normal (Black 76)?

in market, many instruments are quoted in volatility, but how we can tell what kind of volatility is this? is it normal volatility, or lognormal volatility. because it affect our hedging positions so ...
3
votes
3answers
172 views

Could we estimate a portfolio's volatility using a GARCH on the portfolio returns?

Estimating the volatility of a portfolio is typically done by first estimating the covariance matrix. This, however, can be difficult to do accurately and predictivly. This paper gives a nice summary ...
5
votes
2answers
294 views

How to calculate volatility on intraday data?

I have several weeks of minute-by-minute stock data (start and end prices, volume). Everything I've read so far leads me to believe there isn't a standard method for volatility, which is leaving me ...
7
votes
2answers
421 views

Why linear interpolation not appropriate for volatility surface construction?

We know linear interpolation is not appropriate for constructing a surface, but why? In the book, "Foreign Exchange Option Pricing: A Practitioners Guide", the author writes: native linear ...
5
votes
1answer
2k views

Historical volatility from close prices (Haug pg 166)

I have implemented a function for calculating historical volatility using close the close method as described by Haug on page 166. When I implemented the formula given by Haug, it resulted in some ...
3
votes
2answers
180 views

How to get around flat likelihood function when calibrating GBM parameters?

I want to calibrate jointly the drift mu and volatility sigma of a geometric brownian motion, $$\log(S_t) = \log(S_{t-1}) + (\mu - 0.5*\sigma^2) \Delta t + \sigma*\sqrt{\Delta t}*Z_t$$ where $Z_t$ ...
2
votes
0answers
83 views

Callable bond price sensitivity to Hull-White volatility changes

I'm using classic Hull-White model for short term interest rate dynamic: $$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$ (Notation is quite intuitive, anyway I am using the same as Wikipedia ...
2
votes
3answers
1k views

How to trade volatility?

I am analyzing the volatility of financial stock returns and let's say I have a pretty good model to forecast tomorrows volatility of the stock returns. So let's say for simplicity reasons I have a ...
2
votes
2answers
76 views

Volatility of Multiple Stocks

According to BSM, Stock Price follows log-normal distribution s.t. $$S(t)=S(0)*\exp(\sigma\sqrt t Z-(\sigma^2t)/2)$$ where Z is standard normal variable Then volatility of this stock is $\sigma \sqrt ...
3
votes
1answer
326 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. ...
4
votes
2answers
125 views

Estimating an appropriate haircut for illiquid stocks

I am trying to determine an appropriate haircut for a basket of illiquid stocks that barely traded during the year. Can someone suggest me an approach to estimate the risk? My dataset has a lot of ...
1
vote
1answer
425 views

Calculate and plot historical volatility with Python

I have downloaded historical data for FTSE from 1984 to now. What I would like to do is to graph volatility as a function of time. What I have written is: ...
7
votes
1answer
1k views

Can American options with no dividends and zero risk-free rate be treated as European?

Let's say you've got American options on a future of a stock index. There are no dividends, and no risk-free rate either (assume $r=0$). Can these options then be treated as European from the ...
5
votes
2answers
372 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 ...
3
votes
2answers
141 views

How to user GARCH(p,q) to identify most volatile sector?

I would like to ask help concerning the utilization of GARCH(p,q) models to identify volatility. Suppose that I have daily closing prices of 6 financial sectors spanning several years, and I am ...