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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Why are some currency pairs more volatile than others?
Why for example GBP/JPY is twice volatile as USD/JPY ? ... and many more cases involving other major forex pairs here: full list.
thanks in advance!
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Question on Realized Vol vs Implied Vol
I have heard the following argument- barring transaction fees, if my estimation of future realized vol is 30% and 1-month ATM implied vol is 20%, then I could potentially buy a 1-month ATM call/put ...
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To use daily volatility or annual volatility
From Joshi's Quant Interviews books:
The statistics department from our tell you that the stock price has followed a mean reversion process for the last 10 years, with annual volatility 10% and ...
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Robust Sharpe ratio
The denominator of the Sharpe ratio is sample portfolio volatility, $\sigma_p$, which is the square root of portfolio variance based on the quadratic squared loss, L2. Alternatives for the denominator ...
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1answer
38 views
Historical volatility calculation to price options with the Black-Scholes formula
I'm looking for a reference algorithm for calculating historical volatility to price options. I know there are several volatility calculation models that use the time series of the underlying's ...
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2answers
67 views
Are there volatility models dependent on returns?
When I look at the relationship between volatility and price, I see a clear negative correlation as shown in this figure (SPY and VIX prices today looking back 1 year).
The common volatility models (...
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29 views
How to mathematically calculate the probability of GBM generating difference of less than some value
I have a custom index that follows Geometric Brownian Motion (GBM) with volatility v. I started this index at 10k with 4 decimal places i.e the starting price of ...
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1answer
63 views
Greeks, European puts
I'm trying to solve this question but i have a lot of problems with it.
European puts with maturity 6 months are written on an asset with current price $S_0=150.$ The annual interest rate is $r=16\%$ ...
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1answer
58 views
GARCH Model Estimation with Standard Deviation
I want to examine exchange rate volatility on Stock Returns. Please, if I Generate Exchange rate volatility (ER_vol)using standard deviations approach, can I include the (ER_vol) as a regressor in the ...
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74 views
how does stochastic volatility models generate smiles?
When calibrating call price with the BS-model, we achieve some parameters and especielly we achieve $\sigma^*$.
Now, lets say I will price call options using these parameters. Then we achieve, lets ...
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Portfolio construction with volume based bars
In the book Efficiently Inefficient, Lasse Pedersen interviews Myron Scholes:
LHP: Why do spreads tend to widen during some periods of stress?
MS: Well, capital becomes more scarce, both physical ...
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1answer
68 views
Calculating Implied ATM Volatility with Vega
Can we calculate Implied ATM volatility with Vega?
Normally, Vega is derived from Volatility, but I wonder the availability of the opposite way.
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58 views
Anyone working on rough volatility modelling? Need relevant books to read
Just wondering if there is anyone working in the field of rough volatility?
I know the rough volatility modelling is quite new in the field. Can I get some books recommendation to go through?
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121 views
Uncovering patterns in price timeseries using linear regression
I have some minute-bar data which my professor suggested I resample to 5 minute bars and then separate it into timeseries per bar period. For example, I get one time series for 12:00, another one for ...
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2answers
64 views
calibration - negative call price [closed]
Im trying to calibrate a stochastic volatility model to market. I end with an MSE of 2-3 with approximately 500 quotes. Some out of the money options with call-price under 1 dollar ends up being ...
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42 views
Extreme AUDJPY FX vols
I'm seeing levels of -12% of market strangle vol at 25 delta for AUDJPY at 20Y onward that is causing havoc with my pricing routines, the 10 delta market strangle is trading around -6% which is again ...
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1answer
68 views
Estimation of volatility into Black-76 formula
I am trying to estimate the (annualized) volatility that should go into an European Swaption (such as 2y5y).
Given we take the black76-formula, where the discounting is the term outside the ...
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Ultra high frequency TSRV
I'd like to verify my approach to calculate high-frequency RV estimator, as introduced in Ait-Sahalia, Myklad, Zhang 2011. After reading the paper a couple of times, it seems to me, that the only ...
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1answer
51 views
Calibrating Heston model parameters using the Active-set method and Levenberg–Marquardt
Background: We're estimating the parameters of the Heston model from current market data of options. This is to be implemented using the active-set method (see section 16.5 here) and the Levenberg-...
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3answers
270 views
Intuitive explanation for the smile in FX
What is the intuitive reason for the smile in FX?
For equities this usually down to crash risk.
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Future Volatility Trading
I want to find a way to long volatility of a future time period such as longing (march,april) vol from today. My idea is to short a straddle for march and long one for April for example. Will that ...
2
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1answer
104 views
SABR Calibration
I need to generate the Volatility Surface of call options on S&P500 index, my
dataset contains implied volatilities regarding various expiration dates for various strike prices.
My doubt is, ...
2
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1answer
121 views
Measuring implied volatility
I'm a new in financial engeneering and trying to understand basic principles of volatility modelling. I wrote many papers and articles about different models (garch, local vol, stoch vol and ect.) and ...
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0answers
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Option Selection (rollover rules) in calculating intraday CBOE VIX (post 2014)
In calculating the CBOE VIX (post 2014) one has to select near- and next-term options, which are defined as options with >23 days and <37 days to maturity. As time moves on, a currently selected ...
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1answer
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How many options would be required to dynamically replicate the VIX nowadays?
The VIX is a portfolio of OTM options on the SPX with non-zero quotes.
From CBOE white-paper:
Only SPX options quoted with non-zero bid prices are used in
the VIX Index calculation. [...] As ...
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1answer
83 views
Adjusting volatility while constructing portfolio
I am trying to construct a portfolio based on a macro momentum strategy for backtesting purposes as outlined in https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/A-Half-Century-of-Macro-...
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1answer
49 views
Heston model with jumps in both variance and underlying dynamic
How can I build on Matlab a Heston model using characteristic function adding jumps in both variance and underlying dynamic ? Suppose that the number of jumps is Poisson-distributed but the jump size ...
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1answer
60 views
Variance of a spread for options on spreads
I was reading the paper:
https://people.umass.edu/nkapadia/docs/Negative_Vega.pdf
In the equation $(5)$, he is defining the variance of the spread as:
$$\sigma_1^2S_1^2 + \sigma_2^2S_2^2 - 2\...
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78 views
How to correctly simulate volatility shocks?
I am working on the comparison of different volatility timing/target strategies on portfolios starting from different conditions (data, asset classes, calculation of realized volatility, different ...
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2answers
296 views
Best topics to begin Quantitative Finance Research/Programming
I have a background in mathematics (Functional Analysis and Probability Theory) and am looking to acquaint myself with research in quantitative finance, particularly with a programming component.
...
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Reading this ichimoku cloud how do you read this wdfc chart?
Having trouble reading the charts as the breakouts aren’t clear
What do you see in this chart?
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1answer
88 views
Fair Strike for Variance Swap with no Skew in IV Surface
I am reading through Derman's 1999 research notes, "More than you ever wanted to know about Volatility Swaps."
In equation B4 of Appendix B, the author takes the Taylor Series of the variance swap ...
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0answers
25 views
ATM Curve Construction: Short-Dates
Please explain example 1 and example 2. In example 1 how does 6 appear in the square root function. And in example 2 it is written:" Assume it is known that
spot will be completely static during the ...
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Volatility spread of Strangle
It's written in a book by Giles Hewitt : " The bid-offer spread quoted on a Strangle in volatility terms will usually be wider than the ATM spread to the same maturity because strikes away from the ...
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1answer
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Portfolio Systematic Risk, Breaking it down into factor % contributions
I have a portfolio (p) of N equities, with let's say weights vector (m) at the start of the calculation period. Each equity has its own set of factors (like corresponding country, industry index, etc.)...
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FX Smile Curve Extrapolation
How a smooth smile curve is generated from 5 smile points : 10D RR, 25D RR, 10D SM, 25D SM and ATM? What are the commonly used extrapolation and interpolation techniques?
I have seen people ...
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Realized vol/var log-normal approximation
It is not clear to me what is a better approximation (based on empirical evidence or otherwise), a log-normal approximation for realized volatility or log-normal approximation for realized variance? ...
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1answer
119 views
Local volatility and Stochastic Volatility
Please help me understand similarity and differences between local volatility and Stochastic Volatility both intuitively and mathematically.
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4answers
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What is the intuition behind “jumps” causing volatility skew?
Some models use jumps as a way to explain volatility skew. I understand that if jumps exist, then you are "mishedged" as you no longer can continuously hedge. Options have a gamma component and ...
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2answers
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What are popular metrics for Option Skew?
What are popular metrics to track skew? Would it be the difference between OTM option and ATM option IV? Would it be a percentage difference in IV?
Also, if both are valid, would a % change be ...
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0answers
75 views
Can variance change over time?
I'm working on a toy project that involves fantasy basketball, I know this is the quantitative finance stackexchange, but it seemed like the best place to ask this question.
My goal is to make ...
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What is the best method to factoring/calculating pre and post event volatility? Such as for company earnings
What is the best method to factoring/calculating pre and post event volatility? Such as for company earnings.
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How To Calculate The Implied One Day Expected Return For Earnings
I am trying to figure out how to calculate the one day expected return given I have the event volatility. In his book Trading Volatility, Correlation, Term Structure and Skew, Collin Bennet (link) ...
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0answers
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Local volatility Formula and How To use it
I'm new to Volatility Modelling, so the content of this question may be completely wrong and th question naive. I'm reading "The volatility surface" by Gatheral. I'm trying to get a sense of the first ...
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3answers
292 views
Why is volatility skew/smile for long term options flatter compare to short term options?
Volatility skew/smile for long term options is flatter compared to short term options, could someone help to explain why is that the case? Thanks
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0answers
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TSRV parameters selection
I'm thinking about how to select the $J$, and particularly, $K$ parameters for the Two Scale Realized Volatility estimation? I cannot find any reference for that in the original paper - there it says $...
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0answers
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HAR-RV model for predicting 1-min volatility
I would like to use HAR-RV model (Heterogenous AutoRegressive - Realized Volatility) to predict a 1 minute realised volatility using the HAR model. As regressors I intend to use RV of previous minute, ...
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0answers
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relationship between option vol and option payoff
Has anyone thought of the relationship between the option vol and distribution of option payoff? for example, I have 1000 paths of simulated underlying prices, keeping all inputs the same but only ...
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0answers
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How to compute reference share price and reference volatility in CreditGrade?
I'm trying to implement CreditGrade in python, from the msci Technical Notes (https://www.msci.com/documents/10199/dd31bcce-6fe3-47b7-9fb7-10c4c8f750ba) but I'm running into some comprehension trouble ...
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Duan (1995) GARCH Option Pricing Model with MATLAB
This is the MATLAB code that replicates the option pricing model proposed by Duan in his paper "The GARCH Option Pricing Model". However, the parameters estimated in the file do not match with the ...
