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I am building a model that takes the 12 month ATM call implied volatility as one of its inputs. I downloaded this implied vol time series data from Bloomberg for CM CN Equity (Canadian Imperial Bank of Commerce) for the last decade or so. However, I've noticed a strange pattern in the data. Occasionally, the implied volatility will double or triple for a single day, and then immediately subside.

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In this time series graphs you can see a few of the sudden spikes that I am talking about around the middle, which last a single day. Is there a reason that one-day volatility spikes might be observed in the market, or is it likely a glitch in the data? Should I remove those spikes from a model, or would I be taking out useful information?

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  • $\begingroup$ Please give the date for the spike which occurred in 2011, so we can check what happened (if anything) that day. To me that one appears to be a glitch in the data. $\endgroup$
    – nbbo2
    Oct 12, 2016 at 16:42
  • $\begingroup$ The date is 5/16/2011 - I did search to see if anything unusual occurred, but it doesn't seem to be the case $\endgroup$
    – beeba
    Oct 12, 2016 at 16:46
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    $\begingroup$ Can you give a few more dates with spikes. One thing that I notice about 5/16/2011 is that it is one day before the big June expiry. However - this shouldn't impact the then-current 12 month implied vol.. $\endgroup$
    – LocalVolatility
    Oct 12, 2016 at 16:54
  • $\begingroup$ 6/12/2006, 3/17/2008, 5/14/2010, 5/16/2011. I'll upload the file with the time series data. $\endgroup$
    – beeba
    Oct 12, 2016 at 17:02
  • $\begingroup$ I checked some other Canadian banks and they exhibit the same trend around similar dates. Please see here: filedropper.com/samplevoldata $\endgroup$
    – beeba
    Oct 12, 2016 at 17:06

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If were you, probably i would take off these data. It seems to be outliers. In any case, check what could be happened in those days.

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  • $\begingroup$ First check what happens and then decide what to do. I wouldn't make any a priori statements about outliers. $\endgroup$
    – Bob Jansen ♦
    Oct 13, 2016 at 12:16

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