Questions tagged [volatility]
A measure of the variation in price over time. Also a measure of the risk of a financial instrument.
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Fitting ARIMA + GARCH in R
I'm forecasting Electricity consumption Data. I have data for one year , so for every 15 minutes there is an observation. My data contains seasonality and I don't know how to fit SARIMA + GARCH into R,...
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25 views
Does my caplet stripped volatility surface make any sense?
My goal is to build a volatility surface for caps on a 3M index implied from SABR model. I have a set of cap normal volatilities for a range of strikes (4%, 6%, 8%, 10% and ATM) and maturities (1, 2, ...
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How can i calculate realized volatility of a spread trade [closed]
If I have the realized volatility of of 2 asset classes, how can I calculate the volatility of a spread?
Long 10 year, short 2 2 year
10 yr vol @ 6%
2 yr vol @ 2%
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1answer
55 views
Yield curve steepening/flattening using different duration treasury futures (TUT Spread) and volatility
Yield curve steepening: long 2 contracts 2 year (2 contracts due to contract size), short 1 contract 10 year
Vice versa for flattening.
If the 2 year note has a expected volatility of 2% per contract (...
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66 views
Spot-Vol covariance and risk reversals
I have been looking into the covariance between log spot returns and log IV returns over a variety of tenors and lookback windows. However I am not sure how these numbers relate back to the outright ...
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51 views
sizing fx futures trades by targeting volatility
If I lever up a JPY/USD futures with a 6% volatility/contract 2x to meet my 12% volatility target, how many contracts should I buy per $100,000 I have in liquidity? How do I size my position based on ...
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59 views
Are there any public implementations of realized kernels? (preferably in Python)
looking to implement a realized kernel model to forecast realized variance of around ~140 equities and indices in Python given order book data.
I have read "Realised Kernels in Practice: Trades ...
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25 views
Charting Annual Volatility From Start Date In a Line Plot
I'm pretty new to python/data viz and this is my first time asking a question on here but I have a df with monthly price data back to 2016 for 6 different instruments. I just want to be able to ...
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27 views
Reduced volatility in local stochastic volatility model
in Local Stochastic Volatility models I always read or hear "first the stochastic volatility model is calibrated to reduced vols and then the local volatility model corrects it" also I head ...
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1answer
50 views
Using converted lognormal volatilities for negative rates in a lognormal Libor Market Model (LMM)
There exist formulas to convert between normal and lognormal interest rate volatilities. In the most simple form the approximation for ATM volatilities would be $\sigma_{LogNorm}=\frac{\sigma_{Norm}}{\...
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202 views
What is Nassim Taleb's Stance on Volatility
Over the years I have read all of Taleb's Incerto. I recall him more or less writing that "stock returns have no second moment". Hence stock volatilities, defined via the standard deviation ...
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1answer
152 views
Understanding out-of-sample performance metrics for Realized Volatility
I fitted several models on a realized volatility process and then proceeded to obtain out-of-sample results. I'm struggling to interpret these results apart from to tell model A seems better than ...
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53 views
Rationale for Historical Volatility definition
I think I understand the most common definition for historical volatility (standard deviation of log returns), but it has me puzzled because it conflicts with my intuitive idea of what volatility is. ...
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1answer
228 views
Vol, Gamma, Vega -- essentially all the same?
When talking to traders I hear this sentence a lot
I am a buyer/seller of X
where X = {vol, gamma, vega}
Is X basically all the same -- they are just saying -- I think implied volatility is cheap or ...
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41 views
Maximum market volatility
I program trading algorithms that create profits from unpredictable market fluctuations. I am looking for markets with the most extreme fluctuations and I need them to fluctuate up and down in a zig-...
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1answer
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61 views
Examining the dependence of the fractional difference parameter in ARFIMA(0,d,0) vs bar size for Realized Volatility
Realized volatility is a long-memory process and so I fitted an ARFIMA(0,d,0) to log(RV15) where RV15 is realized volatility calculated from 15-min bars. I proceeded to examine how changing the bar ...
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62 views
FX options: is convexity usually heavily overpriced?
I have access to daily vol quotes for EURUSD options from 2006 to today. I was playing around with them and constructed a "daily rolled backtest" for various options constructs, like ...
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33 views
Spot-Vol Correlation ITM Receiver Swaption
I am new to the term Spot-Vol Correlation. As far as I understand it describes the "relationship" between the spot rate and the implied volatility. So I heard when we are ATM it means that ...
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112 views
Introduction to volatility targeting, scaling, timing
I am a finance student, but I am quite new to the field of asset management and quantitative Finance. I have to write a literature review about volatility targeting and I am looking for good resources ...
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60 views
Computing the Variance Risk Premium
The Variance Risk Premium (VRP) is defined as:
$$VRP(t,t+\Delta t) \equiv RV(t,t+\Delta t)^2 - IV_t(t,t+\Delta t)^2$$
where $RV^2$ is the realized variance between $t$ and $t + \Delta t$ and $IV_t^2$ ...
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Why calibrate volatility Models to volatility surfaces rather than underlying's historical price data?
I'm trying to grasp the rationale for calibrating stochastic volatility models (i.e. Heston model) to empirical IV data from market prices. Doesn't this assume that the options are fairly priced and ...
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2answers
93 views
Early expiry option implied volatility
I’m new to this forum so first of all I wanna welcome everyone here.
I am a commodity trader, mostly covering option books (vanilla and structured one) and I would ask more expert people how they can ...
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1answer
200 views
Realised variance under simple rough volatility model
Using the Mandelbrot-Vann Ness representation of fractional Brownian motion in terms of Wiener integrals, increments of the logarithm of realized variance $v = \sigma^{2}$, under the physical measure $...
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44 views
Covariance of ARCH(2) model
I am having problems solving the following exercise:
The solution is the following:
I understand we are calculating E(r^2t) and E(r^2tr^2t-1) because they are part of the covariance formula, and ...
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82 views
Where can I find a source that futures traders use ATR and stock traders use log price ratio standard deviation to calculate volatility?
In the wikipedia article about the average true range, I can find the following statement:
Since true range and ATR are calculated by subtracting prices, the volatility they compute does not change ...
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51 views
How to measure accuracy of SABR volatility surfaces?
I would like to test how accurate are SABR volatility surfaces with respect to historical volatility over a given time period and for a specific equity index.
Reading a few papers I realised that one ...
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33 views
Industry standards for vol control index options
Consider an index of the type:
$I(t)/I(t-1) = 1+ a(t) (S(t)/S(t-1)-1)+(1-a(t))r(t-(t-1))$
It is arbitrarily initialized. $r$ is the risk free rate.
a(t) is determined piecewise as:
$a(t)=s_{target}/s_{...
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1answer
126 views
Difference of polynomial interpolation for volatility smile
I am using 5 volatility points to build a volatility smile : put 10D, put 25D, ATMF, call 25D and call 10D. I have thus 5 pairs of data : (Delta, Vol) let's say for example (10;5.75) ; (25; 5.50) ; (...
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1answer
53 views
Sharpe Ratio of a Long-Short Portfolio
I have a portfolio High and Low (according to the highest profit). From this I have formed my long short portfolio and calculated my Sharpe Ratio. How to interpret this correctly? Does a positive ...
6
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2answers
1k views
If the volatility of pounds/euros = .2 do we know anything about the volatility of euros/pounds?
I think the question here is what we know about $\mathrm{Var}\left(\frac1X\right)$. Is this the right question to ask, and if so is there anything that can be said?
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57 views
Volatility targeting / sizing for option strategies
I am trying to work out how to properly size an option strategy to a given target volatility.
Assuming I have \$100 capital and I would like to have a strategy's long-run daily volatility to be \$1 (e....
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54 views
Construction of vol term structure for Libor
When we want to construct Interest rate term structure we look at various market instruments like futures, swaps etc. and using ...
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149 views
GARCH(1,1) parameter estimation optimization method
In estimating a GARCH(1,1) model,
$$\sigma_{t+1}^2 = \omega+\alpha \epsilon_t^2+\beta\sigma_t^2$$
Usually the parameter tuple $(\omega,\alpha,\beta)$ is estimated by the quasi-maximal likelihood. ...
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48 views
Ito's lemma results in negative volatility processes
I struggle with the interpretation of a process I derive from Ito's Lemma. Let's say I have function f(S,t) which is twice differentiable wrt S.
I thus can apply Ito's Lemma to get $df(S,t)$. So far ...
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1answer
72 views
GARCH parameter estimation by linear regression?
In estimating a GARCH(1,1) model,
$$\sigma_{t+1}^2 = \omega+\alpha \epsilon_t^2+\beta\sigma_t^2$$
Usually the parameter tuple $(\omega,\alpha,\beta)$ is estimated by the quasi-maximal likelihood$. Can ...
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74 views
Realized Volatility + GARCH - can I use hourly realized volatility?
I hav minute bar FX data and I am trying to fit a realized variance GARCH model using rugarch. This normally works by providing daily returns and daily realized volatility to the model.
Realized ...
2
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1answer
113 views
GARCH calibration with overlapping time intervals
In constructing a GARCH(1,1) model over a time length $\delta$, I am considering the following procedure. The purpose of this procedure is to give more training (calibrating) samples than non-...
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2answers
247 views
Where can I find caplet implied volatility data?
I am looking for caplet implied volatility data for Libor-EUR. Is there any online data base etc. available to get such data? Does ...
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45 views
QuantlibXL - How can I define a volatility surface using moneyness instate of strikes?
I wonder if in the function qlBlackVarianceSurface() I can replace the strikes for moneyness and then price the option using the spot = 100% and the option strike = Original_Strike / Original_Spot.
...
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130 views
Contribution to Mahalanobis Distance
I am using Mahalanobis Distance to measure abnormal behavior within a portfolio consisting of a handful of general asset types, and am trying to figure out how to decompose this measurement into ...
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38 views
Delta hedge analysis - volatility rapidly growing
I'm working with a hedge expirement design, where I daily hedge with EGARCH(1,1) forecasted volatilty based on a moving evaluation of the past 126 days.
However, I can't seem to understand the profit ...
1
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1answer
96 views
Free Arbitrage conditions in ATM swaption surfaces
I'm wondering how can we check free arbitrage conditions in ATM swaptions surfaces since we only have access to Expiry, Tenor and volatility?
Can someone help me please, i didn't find any article ...
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Perfect in-sample size for out-sampling volatility prediction (EGARCH(1,1)
I have a few questions regarding in-sample size for volatility forecasting in EGARCH(1,1). I'm currently sitting with a dataset consisting of 1387 trading days of the S&P-500 index. I would like ...
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1answer
286 views
Realized Variance (realized volatility)
I'm confused about realized variance. I roughly know the theory around Ito Calculus and quadratic variation and integrated volatility so I understand what realized variance measures (even though as ...
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0answers
29 views
How to estimate lambda from NAGARCH submodel in R
I am trying to estimate the model="fGARCH", submodel="NAGARCH" from the rugarch package in R.
However, when I am estimating the parameters, only omega, alpha, beta and gamma are ...
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63 views
Intraday volatility pattern of Emini
I have the series of 1-min logarithmic returns of Emini future from 2007 to 2020
I calculated the standard deviation of each return at a fixed time of day and then I plotted the results (see image).
I ...
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30 views
Calculating E^2[σ^2] where σ is a GARCH(1,1) Proces
Given that α =0,113079 β = 0,873884 ω = 0,0000081
Need the calculate a call price using garch volatility I alsa calculated the kurtosis = 235 enter image description here:
https://www.researchgate.net/...
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1answer
245 views
Market price versus theoretical price of varswaps
When I traded varswaps several years ago, for some indices there was a significant mismatch between market price and theoretical price.
The theoretical price assumes continuous monitoring and infinite ...
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37 views
Realized volatility calculations from real dataset
I am working with a dataset from: http://web.math.ku.dk/~rolf/Svend/
named data 1.
I'm currently setting up a delta hedge for periods of 3 months. So currently we are starting at the start data of the ...