We’re rewarding the question askers & reputations are being recalculated! Read more.

Questions tagged [volatility]

A measure of the variation in price over time. Also a measure of the risk of a financial instrument.

Filter by
Sorted by
Tagged with
3
votes
0answers
15 views

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 ...
0
votes
0answers
32 views

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 ...
0
votes
1answer
43 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-...
0
votes
0answers
19 views

CFH TOOLBOX MATLAB OPTION PRICING [on hold]

Does anybody know CFH (Characteristic Function Option Pricing) toolbox of matlab? How does this toolbox work? I've just intalled it into my matlab and I would like to use it to pricing option with ...
0
votes
1answer
39 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 ...
1
vote
1answer
52 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\...
1
vote
0answers
69 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 ...
4
votes
2answers
252 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. ...
0
votes
0answers
27 views

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?
2
votes
1answer
78 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 ...
0
votes
0answers
24 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 ...
1
vote
0answers
38 views

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 ...
1
vote
0answers
57 views

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.)...
1
vote
0answers
42 views

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 ...
1
vote
0answers
30 views

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? ...
1
vote
1answer
98 views

Local volatility and Stochastic Volatility

Please help me understand similarity and differences between local volatility and Stochastic Volatility both intuitively and mathematically.
3
votes
4answers
165 views

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 ...
1
vote
0answers
36 views

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 ...
2
votes
0answers
73 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 ...
0
votes
0answers
20 views

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.
1
vote
0answers
40 views

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) ...
2
votes
0answers
51 views

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 ...
1
vote
3answers
241 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
2
votes
0answers
24 views

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 $...
2
votes
0answers
30 views

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, ...
1
vote
0answers
32 views

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 ...
0
votes
0answers
11 views

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 ...
1
vote
1answer
83 views

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 ...
2
votes
1answer
85 views

Realized Volatility Methods

Can someone explain to me which of these two methods is more accurate or commonly used to calculate Realized Volatility? I'm seeing both used, but I get very different results from them. 1) Standard ...
1
vote
0answers
56 views

Different definitions of volatility (simple question)

I have a basic question on volatility that I wanted some clarification on. In finance books (such as Hull), there's a few different ways volatility is defined. One of them is the standard deviation ...
2
votes
1answer
94 views

annualized volatility formula is an approximation?

suddenly having troubles with the annualized volatility formula... is it really an approximation? one usually writes the standard deviation of the yearly percentage change in the stock price as $$\...
0
votes
1answer
45 views

Weighting schemes - Volatility

One extension to this weighting scheme is to assume a long-run variance level in addition to weighted squared return observations. The most frequently used model is an autoregressive conditional ...
0
votes
1answer
32 views

Can I use root mean square(RMS) to calculate volatility of intraday feed data?

I've been using standard deviation as a direct/simple approach to calculate volatility of a given intraday feed data. My question is it logical/sensible that using root mean square (RMS), which is the ...
2
votes
2answers
89 views

Why do stocks with high sensitivities to innovations in volatility have low average returns?

Ang, Xing and Zhang (2006) state that "stocks with high sensitivities to innovations in aggregate volatility have low average returns". I am familiar that this question has been asked before in ...
1
vote
1answer
66 views

How to calculate standard deviation cone around expected returns?

I would like to evaluate the returns of an investment manager who has given me their return and volatility expectations for their fund. I would like to calculate both 1 and 2 standard deviations from ...
6
votes
2answers
76 views

CDS volatility: daily return calculated by simple substraction (Pt - Pt-1)?

I am working on validating the CDS volatility generated by a third party risk engine. It appears that returns are calculated with simple substractions and adjusted for the CS01: (Price of the CDS ...
2
votes
0answers
47 views

“high sensitivity to innovations in aggregate volatility”" [duplicate]

Ang, Xing and Zhang (2006) state that "stocks with high sensitivities to innovations in aggregate volatility have low average returns". I am familiar that this question has been asked before in ...
1
vote
2answers
97 views

Stock Volatility with Uncertain Probability

Suppose that the probability that determines the state of the economy is unknown. That is, you do not know whether the booms or recessions are more likely. Calculate the expected return and the ...
3
votes
1answer
95 views

model high frequency bitcoin volatility

I am trying to model volatility of 1-minute returns of BTC, but it seems to me that the data do not behave traditionally. I tried fitting GARCH, eGARCH with ARMA (1,1) or (2,0), but I am not confident ...
5
votes
1answer
136 views

Why do we fit volatility surfaces implied from a option pricing model to the empirical data?

As far as I understand volatility surface. It is made of 2 components, the volatility skew/smile and the volatility term structure. Together they form something like Implied volatility is ...
2
votes
0answers
34 views

how to model NGARCH using 5min frequency data?

NGARCH model using 5-min High-frequency data in R I wanted to analyze some 5 minute frequency data of stock market. My teacher asked me to use NGARCH to model, but I didn't know how to program.Here ...
2
votes
0answers
155 views

Why do coefficients flip after the including a lag in the optimisation? implied volatility/skewness/ivspreads

I'm hoping some of you guys can help me out. I am applying the paramametric portfolio optimisation of Brandt, Michael W., Pedro Santa-Clara, and Rossen Valkanov. in which the weights on specific ...
8
votes
3answers
569 views

What is the appropriate benchmark for a Long/Short VIX futures strategy?

Trying to figure out the benchmark for a L/S Vix futures stragegy, doesn't seem like only long or short Vix futures would be appropriate, any ideas? Thx
0
votes
0answers
49 views

looking for a simple realistic parametric volatility model

Which parametric volatility is realistic to test quickly and qualitatively a model? I do not wish to fit market quotes but would like to have a non-trivial volatility with skew or smile to do some MC ...
2
votes
1answer
86 views

What is the annualized realized volatility of simulated Brownian motion paths?

I saw this following question in an exam. Take a Brownian motion simulation with drift 5% and annualized volatility of 20% for a period of 1 year. Then the annualized realized volatility of the ...
0
votes
0answers
32 views

Negative drift when calibrating GBM parameters

Setup for question: Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE $$dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
0
votes
1answer
42 views

Confidence Intervals for ARMA+GARCH forecasts

I have fitted an ARMA(1,1)+GARCH(1,1) model to my logreturns series. When it comes to my standarized error's distribution however, I have opted for a Skewed Generalized Error Distribution, because of ...
0
votes
0answers
26 views

Arbitrage bounds on volatility of price of binary option?

What are the arbitrage bounds on the volatility of the price of a binary option? If the binary price moves too much (such that it violates the arbitrage bounds) what trades would you actually execute ...
0
votes
0answers
26 views

How do I export data from the volatility lab?

I am trying to export data from the volatility lab within the interactive brokers TWS platform. Specifically, I am interested in implied volatility and historical volatility for specific tickers. ...
0
votes
0answers
21 views

Volatility Skew fitting in R; Calculate option delta using various volatility dynamics

Given a fixed maturity option chain, i was wondering if there is any way to evaluation an option against this volatility surface and compute the various delta of the options wrt to volatility dynamics ...