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

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49 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 ...
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1answer
97 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
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3answers
204 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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2answers
66 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: ...
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2answers
368 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 ...
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139 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 ...
3
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1answer
333 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. ...
10
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2answers
433 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 ...
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2answers
82 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
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1answer
100 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 ...
4
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1answer
133 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 ...
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2answers
2k 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
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1answer
114 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
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2answers
68 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 ...
1
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1answer
77 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 ...
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1answer
152 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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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?
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1answer
117 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? ...
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2answers
94 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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51 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
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1answer
155 views

Effect of volatility on the delta of a call option

In the book 'Dynamic Hedging', Nassim Taleb writes: ...
2
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0answers
57 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 ...
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0answers
54 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 ...
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98 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 ...