A measure of the variation in price over time. Also a measure of the risk of a financial instrument.
5
votes
1answer
423 views
Tradable Volatility
VIX (spot) has very nice features, including mean reversion. We all know that we can't trade VIX (spot). The closest we can get is using front-month future contracts. The problem I have with that is ...
5
votes
1answer
247 views
Problems with dealing with GARCH models and intra-day data
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.
Long time ago I was preparing my thesis, one ...
5
votes
0answers
524 views
Volatility-Based Envelopes
I am following an article by Mohamed Elsaiid (MFTA) about Volatility-Based Envelopes - a quite new technical indicator he has introduced, that is being used by Bloomberg. My goal is to get a simple ...
4
votes
4answers
379 views
What are the advantages/disadvantages of these approaches to deal with volatility surface?
I would like to know if someone could provide a summarized view of the advantages and disadvantages of the approaches on the volatility surface issues, such as:
Local vol
Stochastic Vol ...
4
votes
3answers
623 views
Does the debt load affect the volatility of equity?
Does the debt load of a company have an impact on the stock price of a company and its volatility? Also, how does the market react to the announcement of a company issuing bonds?
4
votes
1answer
215 views
Reference on Electronic volatility trading [duplicate]
Possible Duplicate:
Looking for a recommendation for a real life volatily trading book.
I recently came in contact with a quant desk that traded volatility. The discussion only highlited my ...
4
votes
2answers
457 views
SKEW and VIX relations?
My question is about the CBOE published index VIX and SKEW.
To start with, I consider working on the variance dynamics. I calibrate the market data (such as VIX and VIX futures) into the Heston ...
4
votes
1answer
340 views
4
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1answer
173 views
Stability of correlations and volatility
I had a discussion recently about the stability of volatilities and correlations. If we take for example stocks and bonds (think of DAX and Bund) then I have seen changing volatilities (something like ...
4
votes
1answer
159 views
How to use Newey West covariance corrector?
I have implemented the following model:
daily_vol(t+1) = A*daily_vol(t) + B*weekly_vol(t) + C*monthly_vol(t) + error
where vol means volatility, and A, B, C are ...
4
votes
2answers
547 views
How to calculate optimal standard deviation bands for trading?
I am trading with standard deviation bands (6 bands) on de-trended data. How can I find the most profitable signals with neural network or GA with standard deviation bands? Should I first find the ...
4
votes
2answers
543 views
How to derive appropriate volatility for a binary option (with strike/term) from market data?
I am valuing a binary FX option (european) with a defined strike and term (2Y). I'm using a closed form solution based on Black-Scholes framework. How can I derive the appropriate volatility to use ...
4
votes
1answer
50 views
So many volatility models. Any comparisons of them?
Are there any papers that make an explicit contrast/comparison of the following (or other) vol models in terms of the suitability for addressing some empirical problem?
Wavelet multiresolution ...
4
votes
1answer
317 views
Volatility models using Rugarch
I have estimated sGARCH, EGARCH and TGARCH, which some for particular models are significant. For others, the alpha remain insignificant using various innovations such as the skewed variants of the ...
4
votes
1answer
387 views
What research is available on the performance of convertible bond arbitrage models?
The basic principles of convertible bond arbitrage have been clear at least since Thorp and Kassouf (1967). For those who are not familiar, the arbitrage entails purchasing a convertible bond and ...
4
votes
0answers
143 views
Asymmetric Volatility Modeling (Interpretation)
I am currently writing a paper on asymmetric volatility modeling of brent, gold, silver, wheat, soybean and corn from 1986-2012 and divided them into 4 sub-sample periods (i.e. 1986-1991, 1991-1997, ...
4
votes
0answers
89 views
Rolling window Kendall's tau against APARCH(1,1) correlation
Assume you want to forecast the correlation matrix of a stocks' basket (say 15 ~ 20 stocks from different sectors); assume you need to forecast at $T$ days because you will use the forecast ouput with ...
3
votes
2answers
198 views
Black-Scholes and Fundamentals
So basically
$dS_t=\mu S_tdt+\sigma S_tdWt$
and
$\mu=r-\frac12\sigma^2$
I have just been thinking about this later equation. This is very interesting because it ties together risk-free ...
3
votes
3answers
117 views
Avoiding negative volatility when applying Heston model
When applying the Heston model to generate the sample volatility surface, some of the volatility value will be negative. I am just wondering what do practioners normally do with these negative value. ...
3
votes
1answer
142 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 ...
3
votes
2answers
837 views
GJR-GARCH Model In R
Any idea how to estimate GJR-GARCH models in R? Is there any particular library like fGarch that supports such models?
3
votes
2answers
358 views
When gains are made: Overnight or during trading hours? What is the connection to volatility?
Falkenblog reports an interesting finding: All of the stock returns since 1993 are from overnight returns and cross-sectionally, volatility receives a positive overnight risk premium, a negative ...
3
votes
1answer
341 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 ...
3
votes
2answers
95 views
Transformation to reduce standard deviation without changing median
Consider some negative skew and high kurtosis return time-series $X_t$. I do not know the functional form of the pdf of $X_t$ and have about 150,000 data points.
Suppose that I was to create an ...
3
votes
2answers
244 views
Backtesting VaR model violation independence
I am interested in hearing about the practitioner state of the art for testing the time independence of a VaR model (i.e. that VaR violations are independent in time). There are a number of tests in ...
3
votes
3answers
185 views
Why in general is the variance of volume changes higher than variance of price changes?
Why, in general, is the variance of volume changes higher than variance of price changes?
I understand that these two quantities are functions of some very different factors, but I don't understand ...
3
votes
1answer
386 views
Science behind options pricing into Earnings event
I am wondering about studies regarding the uncanny options pricing into public company's earnings reports.
The phenomenon being that the price of a straddle before earnings costs near exactly the ...
3
votes
2answers
174 views
Fitting distributions to financial data using volatility model to estimate VaR
I want to fit a distribution to my financial data using a volatility model to estimate the VaR. So in case of a normal distribution, this would be very easy, I assume the returns to follow a normal ...
3
votes
1answer
117 views
market completion under stochastic volatility model
Consider a stochastic volatility model. As there are two sources of risk and one asset only, this is an incomplete market. One can complete the market by considering a derivative V1 used to hedge the ...
3
votes
1answer
1k views
How to estimate a multivariate GJR or TARCH model in Eviews?
How do I specify the GARCH/TARCH equation in Eviews 6 in the variance regressors frame, if I want to find out whether there are volatilty spillovers from stock markets A and B to stock market C?
P.S. ...
3
votes
1answer
95 views
Why are there different estimators for stock volatility? (realized variance, RAV, etc)
I am very confused about why different volatility estimators (RV, RAV, BPV, etc) exist. If the goal is to find the best estimator for stock volatility, and volatility is latent, how do I know which ...
3
votes
3answers
609 views
How to normalize different instruments by volatility?
I'm trying to think on a way to normalize stocks to be on the same scale depending on their recent volatility.
Is there some theoretical reference on the subject or and experience you can share?
3
votes
1answer
208 views
Does the correlation amongst stocks rise when stock values decline?
Is there any research on whether the correlations among stocks rise when stock indices decline? Which model could account and test for that effect ? Maybe GARCH-BEKK, or some models using copulas?
3
votes
1answer
240 views
How to use volatility to assess the accuracy of a stock market model?
Background: For a dissertation I have a multi-agent stock market model that I am using to assess different mechanisms for producing particular dynamic regimes. A key point is assessing how closely it ...
3
votes
0answers
106 views
Fitting a non linear AR + GARCH(1,1)-M model
I want to fit the following model to a time series:
$$
y_{t}=\alpha_{0}+\alpha_{1}y_{t-1}+\alpha_{2}y_{t-1}^{2}+\lambda h_{t}+\varepsilon_{t}
$$
$$
...
3
votes
0answers
90 views
Measuring unbiased estimator for variance with RMSE?
The root mean squared error (RMSE) is considered by some to be the best measure of how good a variance estimate is. You often see it quoted as:
$RMSE=\sqrt{\frac{1}{n}\sum_{i=1}^n(\hat{\sigma_i} - ...
3
votes
0answers
245 views
Real time stock volatility
Is there any need for real time weighted volatility on a tick by tick basis for equities?
If you had that access to that, what could you do with it?
3
votes
0answers
116 views
What is the relation between return volatility and return rank volatility, and how can I control the latter?
I have no experience in finance, but I've been playing around with a virtual portfolio.
I'm trying to control the "rank volatility" distribution - that is, the volatility of a stock's daily rank in ...
3
votes
0answers
164 views
What is the longest number of consecutive days that options implied volatility has stayed “extremely high” for any particular underlying?
Curious as to whether or not there is any sort of all time record. Any index, future, or stock will do. Volatility must be well above the average 1 year volatility for all periods.
2
votes
2answers
125 views
Squared and Absolute Returns
I've always wondered why do one use squared or absolute returns to determine if volatility modeling is required for the return series? We understand that there are various tests for its ...
2
votes
2answers
178 views
Why FX Vanilla Options are quoted in volatility
I've been curious why vanilla options are quoted (and traded) in terms of volatility. Considering that every financial institution has its own options pricing model, volatility as an input would cause ...
2
votes
3answers
404 views
Trading a synthetic replication of the VVIX (volatility of VIX)
In the same spirit as this question: Trading a synthetic replication of the VIX index.
The VVIX tracks the volatility of the VIX.
One cannot directly buy and sell the VVIX index and, as opposed to ...
2
votes
2answers
1k views
Garch modelling on Stata
I would like to ask "how to do GARCH modelling on stata".
Basically I want to estimate stock market volatility using daily data. I have one variable as return series, $r_t=\ln(\frac{P_t}{P_{t-1}})$.
...
2
votes
1answer
82 views
How to calculate two-time scale variance?
I am having trouble understanding how to calculate two-time scale variance as I do not have a strong mathematical background. Suppose I want to calculate the TSRV at 5 min intervals. Do I calculate ...
2
votes
2answers
187 views
Should I use GARCH volatility or standard deviation in cross-sectional regression?
I want to do a cross-sectional study where the historical, medium-long run volatility of some return series (call it $R_t$) is included as a regressor. Which of the following two estimates of ...
2
votes
1answer
108 views
How to group mutual funds by volatility?
I want to group Mutual Funds by their volatility.
Ideally, I would like to end up with the mutual funds beings attached to different groups:
High volatility
Medium volatility
Low Volatility
My ...
2
votes
2answers
171 views
Construction of “vol of vol”
How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
2
votes
2answers
145 views
Time Varying Volatility
If stock returns ($r_t$) are not auto correlated why is that the squared term of the returns (volatility) exhibit serial correlation? Does heteroskedacity, by its nature, imply that time varying ...
2
votes
3answers
127 views
Logarithmic returns for realized variance?
I am wondering which method makes more sense when computing log returns. I am trying to compute log returns for realized variance, and I have the opening and closing prices for every minute.
Since ...
2
votes
1answer
129 views
How to calculate implied volatility and greeks in Bull Put Spread option strategy?
Ok, obviously I am buying lower strike put and selling higher strike put. What is the recommended volatility and greeks to consider in my trade?
Volatility:
Average volatility between both legs?
...
