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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57 views

Understanding GARCH

I asked this on stats.stackexchange but I realized this might be a better place to ask this question. I am new to finance and volatility forecasting and am trying to understand how garch model works. ...
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Implementing a Variance Swap Hedging in R

I am trying to compute a hedge for a variance swap, in a simulation. Fo that I am using the following equation:\begin{align*} E^Q\bigg(\sum_{i=1}^n \bigg(\frac{S_{t_{i}}-S_{t_{i-1}}}{S_{t_{i-1}}}\bigg)...
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forward variances under rough bergomi

I have seen in several papers on rough volatility using the following expression for the forward variances $$ d\xi_t(u) = \xi_t(u) \eta \sqrt{2H} (u-t)^{H-1/2}dW_t $$ Can anyone explain to me how this ...
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How does one obtain a realistic range for the VIX using its volatility if it is at its multi-year low?

Suppose the VIX index is at a hypothetical multi-year low of 15, yet the volatility of VIX has a reading of 100. If one were to surmise from this volatility of VIX a range for the VIX over the coming ...
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Volatility vs. market returns [closed]

It turns out that it is possible to have a model that fits observed return distribution well, but its implied volatility dynamics is a very poor approximation of the realized volatility. On the one ...
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The put-call parity have to be fulfilled by an asian option

Coming from here: https://quant.stackexchange.com/a/7616/43679 we have that for a European option, and due to the put-call parity, due to the non arbitrage rule, the volatility for a put and a call ...
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VaR using normal vol vS lognormal

We are using a vendor's software to calculate the Parametric VaR (using RiskMetrics approach) that take as input the volatility figure of the risk factors. The volatility used so far was the lognormal....
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Adjusting derived volatiles using skew

Once we obtain a prediction for the future volatility using (GARCH, HARQ, etc), do we have to adjust the implied volatility dependent on the strike price. How would we incorporate a skew versus a ...
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Black Standard Deviation in QuantLibXL

I was having a doubt about a fucntion in the QuantLib add-on for excel. What is the formula for the function: qlBlackFormulaImpliedStdDev(...) I know that there ...
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Negative Density in Local Stochastic Volatility (LSV) Model Calibration

I'm trying to calibrate Local stochastic volatility model using finite difference method, and I'm mainly following this referece: Tian (2015). I met a problem when calibrating leverage function - the ...
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Converting Historical Volatility to Implied Move

I am trying to calculate an implied one-day move value for an instrument given its historical volatility. While I am familiar with this formula for implied volatility to implied move: and intuition ...
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How to properly annualize portfolio volatility

I have a portfolio consisting of several assets and I'm using daily data to calculate various portfolio metrics, including historical returns and volatility. In order to compare portfolio performance ...
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Multiple Indices for CAPM model [closed]

I am new to quantitative finance so, please excuse me if the terms are not correct. I am trying to apply CAPM on a portfolio which has multiple indices (S&P 500, Russel 1000 and S&P Financials)...
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open-close intraday demeaned log return calculation

open-close return is basically what I feed into the realized kernel volatility and recently I noticed the realized kernel covariance/variance is generating negative value so I had to retrace my ...
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annualized vs annual returns

For the purposes of MPT, to compute return of an asset, one typically uses the daily log return of the assets and then anualizes it and the same goes for stddev ...
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Log Moneyness vs Log Strike

In How to calibrate a volatility surface using SVI, is said: "(log-moneyness would be more accurate) ". First, why do we talk about "moneyness", is it a reference of "being in ...
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weekly returns and the daily returns scaled to weekly

I am new in this blog and first of all I want to apologise for my english. I have to calculate, for a university project, the weekly returns and daily scaled returns to weekly for few stocks For ...
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Sub-portfolio correlation

I am trying to reduce correlation matrices into sub portfolios. For example, I have a covariance matrix $\Sigma$ and weight-vector $w$ of two line items which I blend together into a sub-portfolio $\...
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does anybody know a package for the estimation in python of multivariate garch model? [duplicate]

is there any package in python for the estimation of multivariate garch models? (bekk, dcc) i tried with the package mgarch but it provides only a few commands and wanted to know if there are some ...
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Rebonatos's formula in C++

I'm trying to code in C++ Rebonato's formula for swaption volatilities $$ v_{\alpha,\beta}^2=\frac{1}{T_\alpha} \sum_{i,j=\alpha+1}^{\beta} \frac{w_i(0)w_j(0)F_i(0)F_j(0)}{S_{\alpha\beta}^2(0)}\rho_{i,...
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Is scaling the standard deviations in the VaR formula (parametric) equivalent to scaling the VaR figure at the end?

I have come across people calculating parametric VaR who scaled the standard deviations by say square root of 10 to scale up to a 10 day horizon. Elsewhere I have seen textbooks suggesting that it is ...
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How does trndbot generate buy/sell signals?

I was looking at trndbot and it's buy/sell signals are pretty good - what algorithm are they using to generate these signals? Although it maybe similar to bollinger bands, it algorithmically ...
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Is there a HAR that deals with the leverage effect?

The EGARCH is a special GARCH model that treats the leverage effect of the volatility. The HARV does not make a distinction between negative and positive returns. Is there a special HARV that deals ...
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Dupire (Local Vol with Imp Vol)

I am trying to implement a local volatility pricer using Monte Carlo and Dupire's equation in function of implied volatilities and I was told that first of all I have to check Dupire is well ...
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Forecasting returns and volatility using ARIMA-GARCH model in R

I am using rugarch package in R to forecast returns and volatility of a stock. I train an ARIMA (p ,d q) + GARCH(s, r) model on ...
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How to annualise hourly returns?

I have hourly open,high,low,close candles data for a particular asset. I wrote my own algo and some back testing code that replays the data from the past hourly candles to calculate the total return ...
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Stochastic Volatility vs Vanna-Volga

I'm working on the calibration of the Heston Stochastic Volatility Model for some FX option data for my bachelor thesis and I was asked "Why should people use Heston instead of other simple ...
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Short the difference between implied volatility and realized volatility of SPX

A professional trader said that the way is not to short VIX or other volatility products, but to short the difference between implied volatility and realized volatility of SPX This has to do with VRP ...
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Swaption extrapolation

I have some ATM swaption volatilities with the following characteristics: (-IBOR) payment frequency: 1M Underlying swap maturities (tail): 1Y, 2Y, 5Y, 10Y, 15Y and 20Y Swaption expiries: 1M, 3M, 6M, ...
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Estimation of time series using GARCH on Eviews

Firstly I should mention that I am new to both Eviews and GARCH models. Anyway, I am conducting some research into the effect that different macroeconomic factors have had on stock index volatility ...
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Options Weighted Vega Derivation

Does anyone have a good reference on how to derive time weighted vega for options? The only literature I found was in this presentation: http://www.topquants.nl/wordpress/wp-content/uploads/2015/01/...
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Quantlib error initializing CapFloor C++ Class

I'd like to use QuantLib as a C++ library to price interest rate derivatives, in particular Cap&Floors. To semplify things a little, let's say I have a vector of EURLibor1Y rates for different ...
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Volatility of basket with constituents priced in different currencies

I'm wondering how the volatility of basket of constituents priced in different currencies can be calculated (without upfront bringing constituent price to basket currency) form volatilities of ...
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Why are these two methods to calculate standard deviation gives very different answers? [closed]

Values=[100, 101, 102.01, 103.03] Method 1: Sum of the squared differences from the mean Mean = 101.51 std = sqrt(((100 - 101.51)^2 + (101 - 101.51)^2 + (102 - 101.51)^2 + (103 - 101.51)^2) / 4) = 1....
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What's a sensible way to measure correlation in the volatility surface?

Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol. Is computing the sample correlation (after controlling for spot-vol ...
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Clean noisy data from arbitrage

My problem is that I have a surface of implied black volatilites that is supposed to represent market data. However, the surface contains some slight arbitrage. More precisely, the graph contains ...
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What is IV really? Why does an option that is about to expire have such high IV for OTM options?

I was reading this definition: https://investorplace.com/2018/08/what-is-implied-volatility-concern-investors-invtlk/ If its IV stands at 20%, a movement of 20%, or $20 per share, over a 12-month ...
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Resources to learn the applications of SVD in quant finance?

I have been searching for quite a while on how singular value decomposition is used in analyzing stock price behavior. I know how to perform it on a matrix of stock prices, have the results in python ...
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Local volatility from Impled Volatilty by Dupire (interpolation)

Hellow, I'm doing my final project and now i have to implement Dupire's formula to get local volatilities from Implied volatilities. I have already got the implied volatilities by Newton so i have the ...
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Determining relative volatility without referring to an index or another security?

Say I am looking at the S&P 500, what is a quantitative way to determine whether the index is currently volatile or not? For example, if volatility > x, it is highly volatile. If volatility <...
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comparing volatilities of 2 different commodities when no delta is provided

If I wanted to compare the relative volatilities of options on 2 different commodities, but the deltas are not provided, is it sufficient to compare by the % each commodities strike is in or out of ...
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Spread and volatility

I look for any references where one consider how bid-ask spread depends on volatility (may be it is more correct to say 'volatility measure'). I would be grateful for any references.
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Portfolio Volatility Calculation

The question: you have a portfolio of risky assets that with a 90% probability (normal state of the world) has an expected annual return of 10% plus a random variable with a standard deviation of 15%. ...
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What is the difference between log volatility and simple volatility in a GBM? [closed]

What difference do they make? Why do many people seem to find more accurate simulations with log volatility? standard volatility in GBM is defined as $\sigma = \frac{1}{N}\sum_{i=1}^N(x_i-\mu)$ where $...
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First Principal Component Large Volatility

I am conducting PCA on several return series of funds and am finding that when I look at the first principal component the values are huge and this the volatility is also enormous relative to the ...
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How much does a rise in volatility in a short-term option affect a longer-term option

How would a rise in implied volatility on a short-term option affect the implied volatility of another short-term option with the same strike, but with slightly-longer expiry? Assuming that the short-...
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Comparison of results given by volatility estimators: Garman-Klass Vs Garch(1,1)

I am pretty new with volatility estimators and I am trying to see if Garman-Klass estimator and Garch(1,1)estimator are closed. So I implemented a python code for the two estimators (an also for the ...
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Implied volatility model-free

I know that $\operatorname{IV-model \space free}=2 \int_{0}^{+\infty}\frac{c_0(T,Ke^{r(T-t)})-c_0(t,Ke^{r(T-t)})}{K^2}\operatorname{d}K$ is calculated using an iterative procedure, i.e. setting a ...
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PRIIP Stressed Volca Calculation

Hello dear Finance mates, i have a question regarding the calculation of the stressed volatility for the stress scenario. I hope I actually typed the right formula for calculating the scenarios for ...
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Constructing Idiosyncratic Risk Factor

I am studying idiosyncratic volatility. After applying the Fama Frech 3 Factor model with its Marktet, SMB and HML factors I want to build a factor based on idiosyncratic volatility. Can I just build ...

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