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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Computation of Future Implied Volatility Surface
I do have a question on the future implied volatility surface.
The current implied volatility surface is easy to obtain, e.g using some interpolation technique on current options prices.
For ...
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64 views
How accurate are Black-Scholes estimates of Vega, Volga, Vanna
Wikipedia provides analytical formulas for calculating Greeks. I can get Delta, Gamma, Theta all from Bloomberg. I need Vega, Volga, Vanna for my research. Should I use these analytical formulas for ...
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Volatility clustering and Behavioral Finance, possible explanation
Currently studying about time series modelling of financial data and faced the known GARCH$(p,q)$ model for modelling volatility. We observe that big changes are followed by large changes and vice ...
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76 views
How is forecasting volatility useful? [closed]
How is volatility useful - from a purely profiteering perspective?
If a quant has good in sample volatility forecasts what can they do with this information? How are options and futures useful? What ...
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26 views
Is this Expected Returns vs Volatility Scatter Plot valid?
I am working on a Udemy course on Portfolio Allocation, learning the basics in Python.
I have 5 companies, I assign different weights of the total investment that is distributed to each company (the ...
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1answer
72 views
Daily idiosyncratic volatility?
I have a long daily times series of individual stocks and would like to obtain daily idiosyncratic volatility (keeping the same frequency). Apparently, the widely used methodology of Ang 2006 would ...
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46 views
Why do we require a continuous volatility calibration while pricing Options [closed]
On pricing Options the volatility surface is represented by a mathematical model (with parameters).
What does it mean to calibrate the volatility surface
How often has the volatility surface to be ...
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1answer
37 views
Procedures to follow when VaR model fails backtest
I was wondering what the correct procedure is to follow when a VaR model fails a backtest (either conditional coverage and/or independence tests)?
Assuming I am restricted to using a historical VaR ...
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2answers
106 views
Why do we need to calibrate vega?
I was going through some paid video on options. The tutor in the video asked the following question:
Person $A$ has the following portfolio at the start of April
Portfolio of options with vega $20,...
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57 views
Can prediction of realized volatility for next day improve delta hedging (gamma scalping)?
Im quite confused. As I understand from standard delta PNL of option + underlying position, pnl is equals to difference between realized and implied vol weighted by gamma.
However, as I understood, ...
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Adding volume information to calculation of volatility
Is there a method to add volume information to the calculation of daily volatility for an equity?
Standard measures, just assume all trading days are the same and use SD to get the volatility, ...
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59 views
Forward implied vol vs Instantaneous vol
In the Discrete Stochastic Implied Volatility Model which is from the standard Heston Model, the model shows the evolution of forward implied volatilities with time.
I thought forward implied ...
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1answer
71 views
SABR ATM volatility
The ATM implied volatility is important in SABR when calibrating the model. Let's consider the ATM vol (for a european call option):
$$\sigma =
\frac{\alpha}{f^{1-\beta}} \left[ 1+ \left(\frac{(1-\...
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16 views
Inflation options volatility data
I am currently interested in the vega hedging of inflation derivatives. Are there any specific market practices in this field?
Furthermore, I would like to know if the liquidity is sufficicent to ...
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50 views
Rough Volatility Prediction - Gatheral, Jaisson, Rosenbaum Paper
I just read through the paper "Volatility Is Rough" by Gatheral, Jaisson and Rosenbaum. There is a website (link: http://tpq.io/p/rough_volatility_with_python.html) that details the simulations they ...
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2answers
100 views
Are there methods of calculating Implied Volatility in the stock market, other than Black-Scholes?
(I've gone through many questions/posts on quant StackExchange and only find responses about Black-Scholes)
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77 views
Industry standard for interpolating FX volatilities
I'm looking to replace the FX vol interpolation scheme at my firm, and was wondering what the industry standard was.
We used to do vanna-volga, but it only takes 3 points (25dp, atm, 25dc), and so ...
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1answer
98 views
Finding parameters of a function for optimal market making with real data
I am reading this paper and trying to apply it with real data to do some simulations.
I will use realtime order book & market order data that I will receive from the exchange. This is a sample ...
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1answer
83 views
How could one trade volatility skew if you think it's too flat or steep?
We all know that you can trade on a forecast of volatility by dynamically hedging, but I'm wondering if there's a similar technique where in you can trade the skew specifically?
Let's say you travel ...
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34 views
Calculating realized volatility from a list of trades
I was wondering if you were given a list of trades with different timestamps that is not periodic, how would you calculated the annualized realized volatility? If you had just candlestick data, that's ...
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1answer
80 views
beginner portfolio statistics - annualized volatility of multi-asset portfolio
Sorry for the dumb question, but I wanted to make sure my understanding of what I read and compiled was correct! I am trying to calculate the variance-covariance matrix, and annualized volatility of a ...
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30 views
Estimating/Rule of thumb for volatility skew from daily returns? Simple example?
Let's say I have a stock with very limited information, I have 5 days (1 weeks) of returns. It moved 0% for 4 days, and then 10% on the 5th. Let's say I assume the stock will move in a similar fashion ...
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17 views
ATM strike and ATM vol for equity option chain
I wanted ti ask about equity index option vols. Often we get the bloomberg quotes for equity option chains, they don't give what is the atm vol, but perhaps just some strikes near the current spot.
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34 views
Is the volatility smile independent of the volatility itself?
Under "similar" market expectations, is the shape of the volatility smile the same for a volatility (^VIX, https://finance.yahoo.com/quote/%5EVIX/) of 13, 25, 36, > 50 etc? Or does it flatten more ...
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116 views
Calculate Idiosyncratic Risk?
I have basic finance background but I am trying to calculate idiosyncratic risk as measure for firm risk in my CEO gender research.
I have found the following on Alpha architect but I am unsure of ...
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38 views
Does it make sense to calculate an option price in future (at t+1)?
Often I ask myself whether it makes sense to calculate the price of a Call at t+1 supposing for example that underlying asset does no move i.e. $S_{t+1} = S_{t}$ ...
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Identifying primary share class of U.S. firms and deleting excess observations
I have a fairly large dataset of CRSP firms with their daily closing prices from 2006 till 2017. I need to filter the data so that I have one daily observation per unique firm. I've identified the ...
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1answer
66 views
Drift of Local Volatility Model - Dupire
i understand that the local volatility function can be computed from the implied volatility surface.(i.e there is no calibration to option prices, we just need the full implied volatility surface only)...
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1answer
80 views
Choosing the Correct Periods for Yang-Zhang Volatility
I am implementing the formula for YZ Volatility using this link.
I am testing it on hourly Forex charts and I'm getting some strange numbers. Taking the 14 day YZ volatility using ...
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42 views
Can someone give a simple example of how stochastic volatility leads to volatility skew/smile?
I've been trying to understand skew and volatility, unfortunately I don't have the mathematical background to necessarily dive into some of the papers, I've tried but the mathematics can overtake me.
...
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91 views
Portfolio risk analysis
I would like to ask you if somone knows how to generate risk measures (such as VaR, Beta, Drawdown, Volatility, etc...) over a Portfolio that hold positions for approximately 7 working days.
Imagine ...
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1answer
60 views
Finding Equity Volatility for the Standard Merton Model of Corporate Debt
I am working on a project studying historical accuracy of the standard Merton Model, but am struggling to follow the required inputs. I seem to read conflicting definitions of the information I need.
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1answer
56 views
Options volatility margin
A basic question.
When traders structure a product in which they are long an option, how is the volatility surface shifted to take into account a margin ?
Is it a multiplicative coefficient, say 95% ...
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2answers
352 views
Mid-curve swaption
I would like to know how the mid-curve swaption could inform us about forward volatility.
In my understanding it is a swaption on a forward starting swap.
Let us say the midcurve swaption expires ...
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1answer
41 views
Can GARCH volatility simulations generally be applied to return-modelling models?
This may be a naive question, but I still hope some discussion can elucidate a (so far) totally nebulous point for me.
I've recently learned that GARCH models can give one simulations of ...
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65 views
Modelling VIX futures backwardation
I have VIX futures trading algorithm and would like to perform Monte-Carlo simulation of VIX and understand how my algorithm performs on each simulation. In this case, not only VIX should be modeled, ...
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78 views
Simulation of a DCC-GARCH
I want to simulate some exchange rates with a DCC GARCH. I know the package rmgarch but I want to code the simulation my self. The following are the main equations ...
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1answer
86 views
Estimating at-the-money volatility where at-the-money option is absent from the market
I am trying to estimate the intraday ATM volatility in a market where the the strike prices are relatively sparse thus the ATM option may not exist (let's say the closest strike is about 2% away from ...
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1answer
49 views
Literature on quoting vol surfaces in the absence of listed option prices [duplicate]
What are some of the modern methods used to price equity volatilities "the most accurately possible" when there are very few listed derivative prices available or even none at all? Do the pricers in ...
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2answers
112 views
Can I use implied volatility of stocks to predict the next days or weeks top 10 gainers and losers?
Is it true if I said that the stocks with the highest implied volatility for its options with just one day to expiration today will inadvertently be the stocks with the largest price movements on the ...
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HAR RV h steps ahead formula
In the formula for HAR RV (or variants) (Corsi (2009) ref) for h steps ahead the only parameter that depends from h is the error. Am I to assume that the only difference between the h=1 model and the ...
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2answers
124 views
How should I convert FX Volatility Surface from one base currency to another?
This might be a very simple question but I wanted to understand how to convert FX volatility surface points which are quoted in one base currency to another currency?
Eg I have fx vol quoted in EUR ...
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1answer
121 views
Does the price of an asset need to be constant in order for its volatility to be zero? [closed]
What are the conditions for the volatility of an asset to be zero?
In my opinion, the only condition is that the return on the asset needs to be constant.
On the web, some people imply that the ...
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34 views
Is a stock with a steadily growing return considered to be volatile? [duplicate]
Let's say we plot the returns of a stock over some period of time and they form a perfectly straight line. Like this:
So the returns are steadily growing. Is this behavior considered volatile?
If it'...
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56 views
volatility for multiple time series
I have time series data for a total of 4 stocks and want to analyze the volatility of those. Moreover I want to demonstrate that they have the same volatility. As a response variable I would use log ...
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2answers
79 views
Can the dependent samples t test be used for this problem?
Short story:
I have 2 sets of data:
Set 1: Daily data of stock market returns (eg. [1%, 1.2%, -2%])
Set 2: Those same stock market returns, multiplied by a number (eg. [2%, 0.6%, -1%] which equals ...
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46 views
Autocall Calibration
I'm trying to price autocalls.
In theory my pricing method is ok (I followed Bouzoubaa's book procedure) but I'm not sure I read anything on calibration of autocalls. Basically my question is what ...
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Dynamically adjusting the size of a Constant Range Bar (on an intraday fx chart)
Constant Range Bars (CRB) is a type of candlestick charting method that does not draw a new candle every unit of time (like every 1/5/15/30 minutes), but every time the range (high-low) of the ...
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2answers
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How do you factor in skew when assessing implied volatility for a non-atm option?
If you think volatility is too cheap, how do you decide if an ATM call or an upside call (which trades at lower vol because of skew) is better?
Let's say you have a $100 stock. You think the stock ...
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1answer
55 views
SPX Convexity Spread
In this report on volatility from BNP Paribas,
https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true
it states on Page 10 that the SPX ...
