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

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502 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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1answer
351 views

Price volatility and yield volatility

This question is a bit confused, but please bear with me. Now and then I see people use the terminology "price volatility" and "yield volatility" in connection with bond options. I understand the ...
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1answer
252 views

How to compare different volatility measures?

I read the Euan Sinclair's book (Volatility trading) in which he suggests different volatility estimators (Close-to-close, Parkinson, Garman-Klass, ...). I am inquiring about what is the best stock ...
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1answer
88 views

what is the vol in the BS formula?

I need to compute the delta of an option for which I know a) the time to maturity, b) the price of the option, c) the price of the underlying asset. what is the formula to get this delta It seems ...
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1answer
251 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 ...
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2answers
398 views

SABR model inconsistent with Black Swaption Pricing

I am confused on the following: When we price swaption, the market convention is to use Black's Model which assumes forward swap rate is following Black's model under the Q(t) measure. When we tries ...
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2answers
129 views

What impact does arbitrage have on realised volatility estimates?

Doing some research modeling/estimating volatility in the bitcoin market. There is quite a bit of scope for arbitrage within crypto-currency markets. Wonder if this has any impact on my volatility ...
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1answer
118 views

Is the volatility of a trader's wealth equal to the volatility of the underlying assets traded?

Assume that a trader trades in several stocks with different volatilities. The return of the trader's portfolio would be the weighted average of returns and the risk would be a function of the the ...
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1answer
115 views

Volatility swaps historical data

I am preparing a study about Volatility and Variance Swaps. Does anyone know where I can found historical public data regarding this instruments? Thanks!
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131 views

Volatility tools / web sites?

Could someone give recommendations regarding volatility tools / web sites that they find useful? I am looking for information that my brokerage platform does not provide. Specifically, I want to see ...
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2answers
1k views

Optimal lag length selection criterion in GARCH(p,q) model using MATLAB

As assessed by the title, I'm trying to estimate a GARCH(p,q) model to forecast stock market volatility and, in order to be able to do that, I've to identify the optimal number of lags, p and q, to ...
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1answer
466 views

Do intraday volume and volatility share the same properties?

volatility clustering and mean reversion are very well known properties that one could use when trading. Traders, especially in options world, do take realized vol into account (e.g. by forecasting it ...
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2answers
2k views

Delta Neutral / Gamma Neutral Positions

I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ...
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156 views

How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
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1answer
184 views

What return equation is Engle referring to in his Nobel lecture?

Engle comments in "Risk and Volatility: Econometric models and Financial Practice" that If the price of risk were constant over time, then rising conditional variances would translate linearly ...
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0answers
154 views

What's the link between EURIBOR3M futures volatility and rates volatility?

If I am not wrong, EURIBOR3M futures with maturity $T$, whose price is $F_{T}$, are quoted like contracts which express the underlying forward rates, $r_{T}$, as $$r_{T}=\frac{100-F_{T}}{100}$$ Now ...
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1answer
98 views

Time-Varying Volatility and Conditional Likelihood

Engle's comment in his seminal paper "Risk and Volatility: Econometric models and Financial Practice" mentions that I had recently worked extensively with the Kalman Filter and knew that a ...
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0answers
230 views

Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility?

From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ...
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0answers
92 views

Derivation of variance of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ...
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1answer
209 views

Directional View of Volatility

What is an option strategy that someone could employ to simply go long/short volatility?? Assuming I want 0 delta(0 gamma if possible) risk in my option position, how do I take a directional view on ...
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1answer
166 views

Model calibration to illiquid assets when pricing options with long maturities

Let us assume one is interested in pricing an option with a very long maturity (up to 20 or 30 years) on a liquid underlying. The market won't have liquid quotes for the higher maturities. Still you ...
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3answers
197 views

Why are short expiries associated with more pronounced volatility skews?

I've noticed that for a given strike price, the shorter expiration dates of options have more pronounced volatilities why is that?
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1answer
351 views

Calibrating Hull-White using volatility data

I would like to calibrate Hull-White model using volatility data.I am using [Park (2004)] paper as a reference. He suggests to minimize the following objective function: where the first term is ...
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0answers
198 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
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1answer
175 views

Volatility calculation for intra-day cash-or-nothing call binary option

Firstly, I do not have a quant finance background. This is new to me, and I imagine that this is a basic question for this group. I am calculating the price of a binary/digital option with ...
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1answer
316 views

what's the relationship between forecasted stock volatility and implied volatility?(option)

what's the relationship between forecasted stock volatility and implied volatility? I know that implied volatility is the volatility calculated by BS formula, is there any relationship between implied ...
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0answers
97 views

Recalibrating SABR parameters for Swaption ATM volatility

I understand that the ATM volatility of Swaption moves quite frequently and the SABR will need to be recalibrated. Which parameter should I recalibrate? Is there any financial meanings why we only ...
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1answer
129 views

First Exit Time Based Volatility

I'm hoping that someone could help better explain why $\sigma$ (equation 2.19) must be multiplied by $\frac{4n}{4n + 1}$. Obviously all the math is there. Perhaps someone can make this easier to ...
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1answer
267 views

Is Cubic spline Interpolation on swaption Volatility arbitrage free?

If I use interpolation technique such as cubic spline to estimate volatility of Swaption with different strike,(with a given forward rate, swap and option maturity) will this be arbitrage free? What ...
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67 views

Clarifying the way in counting number of weeks for calculating historical weekly volatility in Bloomberg

I would like to confirm the way to counting number of weeks for calculating historical weekly volatility in Bloomberg. Given an option with issue date from 14/1/2014 to 13/1/2019, is the proper way to ...
4
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2answers
384 views

Expected value of Black-Scholes

(Apologies for any formatting mistakes) Within the Black Scholes model, given that you are estimating the volatility from historical data - and all other parameters assumed exact - one usually ...
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1answer
131 views

What is the realized volatility's estimation error?

Given an estimation procedure and real data, how would one compute the mean squared error? What value represents the "true" realized volatility in the case of calculating the Mean Squared Error in ...
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4answers
267 views

Error message in calculation Implied Volatility

I am unsuccessfully trying to find the Implied Volatilities for the SPX on a given date using information of the CBOE, as well as Open Interest, but as I run the code I am getting and error message ...
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3answers
940 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 ...
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1answer
241 views

Evaluation volatility with Garch model

I want to forecast the volatility (with Garch) of a canadian stock in 5 months with daily returns. How many data do I have to collect ? Thanks.
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585 views

How to use a realized kernel?

I've read that realized kernels are the thing to use for calculating daily volatility from high-frequency data. So I've got minute data, how do I actually use such a kernel? Will it give me minute-ly ...
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1answer
177 views

Basics about the scaling property of volatility

It is a usual practice to calculate realized volatility $\sigma$ using the square root of the usual variance estimator $\hat{{\sigma}²}$. This is done using the stock log returns (practitioners ...
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2answers
271 views

Extrapolating implied volatilities to small time

Could anyone please direct me to literature or methods for extrapolating the implied volatility surface towards small expiry? I'm looking to price very short time to expiry binary options (e.g. 5 ...
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2answers
448 views

How to compare volatility models?

What are the most popular ways to compare volatility models? Suppose I wanted to compare the forecasting accuracy of a GARCH(1,1) model with the historic 30 day volatility. What method should I use? ...
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1answer
151 views

evaluation of volatility models using loss functions

This question has two parts, What is the state of the art in an academic or public knowledge sense of volatility forecast model evaluation? Since there are many methods out in the wild, and do ...
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1answer
388 views

What good papers of short term (<30 seconds) volatility estimation [duplicate]

I am looking for good papers of short term (<30 sec) volatility estimation AND short term volatility forecasting. Do you have something in mind ?
3
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1answer
738 views

Fitting a GARCH BEKK model

I am trying to find whether there is significant volatility transmission between two price series (t=1000). A literature review learned me that the GARCH BEKK model is suitable for this. The SAS ...
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1answer
372 views

How to compute a sector's volatility within a portfolio?

Assume I have a large portfolio of equities spread across three sectors. I am attempting to compute the volatility of these sectors within the portfolio considering the cross correlations among the ...
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3answers
4k views

relation between asset's and equity volatilities - merton model

In terms of Merton credit risk model need to find the initial value of counterparty's assets and the volatility of the assets. Both value are not directly observable thus we have to approximate them ...
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2answers
258 views

Electricity volatility smile

In the electricity sector, what should be the shape of the volatility smile? a behavior similar to other commodities with a convex curve, decreasing first and then growing to the initial level. or ...
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3answers
220 views

Black model - volatility estimation

In the Black (1976) model: We should use the settlement prices of the underlying futures contract in order to estimate the volatility, right? Or can we also use the spot prices? Because the ...
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0answers
27 views

explanation for preference of volatilities in option premium quotes [duplicate]

could any one suggest an explanation for why premium in option markets (currency or otherwise) are quoted as volatilities rather than (premium/abs(spot price - settlement price)) or some other ...
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3answers
1k views

How to calculate return rates with negative prices?

I'm dealing with electricity options and I'm considering the possibilty of negative prices. I want two estimate the historic volatility. However, an arithmetic mean doesn't feel appropriate and ...
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2answers
336 views

how to calculate more efficient volatility figure than historical volatility?

can we use alpha value to calculate option price instead of historical volatility. And if we can please explain how. I am doing my MMS in Finance and this for a project i am doing. the project is ...
4
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4answers
3k views

How to calculate the implied volatility using the binomial options pricing model

I want to calculate IV for american options with dividends. So far I have found algorithms to calculate the option price given a volatility. Please can you point me to paper or implementation (R, ...