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

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78 views

Volume or Volatility?

I've recently been given a project which came with some documentation. In this documentation is a bullet point that reads: Liquidity Risk in Equity, Credit and Vol I'm unsure as to whether vol is ...
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66 views

Cointegration and variance of time series

Given that $X_t , Y_t$ are two cointegrated random processes, what can we say about the relationship between variance of the two increments $var(X_{t+h}-X_t)$ , $var(Y_{t+h}-Y_t)$ for a given ...
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2answers
86 views

Short Volatility [closed]

Being net short options is an obvious case of being short volatility. But what other investments are "functionally" short volatility? Is long equities long or short volatility? Is short Apple long or ...
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3answers
132 views

Direct use of implied volatility

I am not sure to understand exactly the direct use of implied volatility. Let's take an example: if an instrument has a daily volatility of $\sigma$, there is a 68% probability that its value will be ...
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1answer
428 views

Moving window forecasting in Python

I am looking to create some code that will out-of-sample forecast the HAR-RV model. The model itself is formulated as the following, and the betas are estimated through HAC-OLS or Newey-West. ...
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62 views

Solving a Non-Linear PDE using a Finite Difference Scheme

I have the following non-linear PDE and I have no idea how to go about solving it using a finite difference scheme in Python. Can someone get me started and/or point me to an algorithm for doing this? ...
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84 views

variance ratio for pair-trading

I am using the variance ratio test to check whether my sequence is mean reverting in that test there is a parameter n, How in general I choose this n? or what is the meaning of this parameter? ...
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69 views

How to calibrate volatility surface for Interest Rate Cap&Floor pricing

I'm using Black model to do interest rate Cap & Floor pricing. The volatility is determined by using the bootstrapping methodology. However, afterwards, how should I do the calibration, or ...
2
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1answer
159 views

On an application of Ito's lemma

Assume that instantaneous returns are generated by the continuous time martingale: $$dp_t = \sigma_t dW_t$$ where $W_t$ denotes a standard Weiner process and One day returns are denoted by $r_{t+1} ...
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50 views

Hedge volatility decreases

My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position. Is there a ...
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2answers
83 views

Garch for covariance matrix?

I have seen plenty of literature about GARCH on estimation volatility. how about covariance? There are plenty of risk models depending on the covariance matrix. I guess we can assume the correlation ...
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120 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
62 views

Variance Swap volatility

In an article, it is mentioned that a parameter is "the variance swap volatility at time t". I know what a variance swap is but I don't know what they could mean by "variance swap volatility". ...
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1answer
380 views

using garch to forecast volatility but getting low persistence model

I am using a GARCH(1, 1) model to try model volatility for a certain stock. I have a GARCH function in matlab that returns the three parameters, omega, alpha & beta. I then use this parameters ...
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2answers
153 views

How to write a home task report which is part of the interview process for a quant position in a trading firm

I recently appeared in an interview for a quant research post in a trading company. As part of the interview, I was given a home-task to solve in a week. The inerviewer gave me a dataset consisting of ...
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0answers
120 views

SRRI calculation for absolute return funds

I am trying to understand the formula for calculating SRRI for absolute return funds described in ESMA's guideline CESR/10-673, and Richard's answer has been of great help (What does this formula (to ...
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1answer
153 views

What is an appropriate algorithm to use for tax loss harvesting?

I've been reading into how Betterment and Wealthfront have architected their tax loss harvesting algorithms, but they stop short of providing any real examples. Essentially, they both reduce to: ...
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472 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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40 views

Correction factors for volatilities of smoothed returns

In An Introduction to High Frequency Finance (http://www.amazon.ca/Introduction-High-Frequency-Finance-Ramazan-Gen%C3%A7ay/dp/0122796713), the authors (on page 253) build a tick-frequency volatility ...
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124 views

Question about historical volatility ranking

I have seen this strategy example, which uses garch in a regime switching context: https://systematicinvestor.wordpress.com/2012/01/06/trading-using-garch-volatility-forecast/ The author classifies ...
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2k views

Correctly applying GARCH in Python

Problem: Correct usage of GARCH(1,1) Aim of research: Forecasting volatility/variance. Tools used: Python Instrument: SPX (specifically adjusted close prices) Reference material: On Estimation of ...
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37 views

Reputational Harm

How would you measure the reputational harm incurred on an individual by an organization. How is Market Pricing in the expected payout resulting from the law suit by an individual ? The news breaks ...
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3answers
382 views

Variance swap replication and variance vega

Noob here. I've been trying to gain a better understanding of variance swaps and what better way than to replicate it with a portfolio of better understood instruments. I have read the GS 1999 ...
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129 views

How to hedge a long stock with the corresponding volatility ETF

Let us say I want to establish a market neutral position. So if I buy 50 shares of stock (SPY) and I want to delta hedge, I sell an ATM covered call. So that brings the position delta to 0. Now, I ...
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110 views

How to calculate probability of option expiring in the money?

Given the following values ...