I'm in the Europe/Berlin Timezone and I need to calculate a global volatility indication Monday to Friday at 12:00.

My portfolio can somewhat accurately represented by 60/30/10 S&P500, EuroStoxx50, and Nikkei225, and I need my volatility indicator to resemble that approximately.

These markets trade in entirely different time zones, and I want to combine the most up-to-date information at 12:00 in the Berlin timezone. So this info is intraday and near-realtime, but I could just use historical daily returns over 24h periods starting at 12:00:00. Basically use 12:00-prices instead of closing prices. I can either use historical daily prices, option implied volatilities, futures, it really doesn't matter.

Are there any 'best practices' to do this? I fear that my only choice will be to provide the latest vol index by timezone/market, and not combine them at all.

Bonus: How to treat dividends? Usually I use NET TR hedged in EUR, but I could work with anything else.

Thank you for your input.

  • $\begingroup$ +1 If I understood clearly, then you want to integrate different volatility measure of different world market to get global market volatility ? $\endgroup$ – Neeraj Feb 16 '16 at 12:40
  • $\begingroup$ Thank you, that is correct. And my main struggle is that the markets do not trade simultaneously, and I would like some kind of consistent proxy. If that is a good proxy we'll see! $\endgroup$ – zuiqo Feb 16 '16 at 13:50

(I don't have enough community points to comment, but this is not a proper answer)

Do you mean implied volatility or realised? If the latter I would suggest using futures prices as each of those indices have futures that are trading live at 12:00 Berlin time. Futures tend to be what practitioners look to for the most up-to-date valuation of an underlying anyway, as they are (usually) more liquid and easy to trade than the cash product.


I gather from your question that you are looking for an accurate measure for your portfolio volatility. Keep in mind that the portfolio volatility is not equal to the weighted sum of its components and you have to estimate the correlation / covariance structure of your portfolio components. The volatility part is much easier to estimate than the covariance. You basically have three options:

1) Use daily historical returns to proxy for the volatility and estimate the covariance. Here you have a lag and information will be incorporated much more slowly. However, your measure will be less volatile. There is some literature on how to estimate volatility and covariance’s correctly from daily data.

2) Use intraday returns (e.g. last 24 trading hours) to compute volatility and covariance. The lag is much smaller here.

3) Use option implied volatilities (from at-the-money options). The problem with implied volatilities is that you cannot estimate the covariance structure. You can either ignore this (and underestimate the true volatility) or you could use an historic measure as a proxy. Both options are not optimal. However, you have no problem with trading times as the implied volatility can be estimated instantaneously.

Given that you are looking for daily updates I would go with option 2. If you care only about the volatilities of the portfolio components take option 3.


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