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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43 views
Difference between volatility measures of a basket of assets
I am trying to understand intuitively the difference between two different measures of realized variance of a basket of assets.
The first measure I am aware of is when you take the realized variance ...
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0answers
33 views
Fama French 3 model
I want to calculate monthly idiosyncratic volatility for the MDAX index which constitutes of 50 stocks. I use the Fama French 3 factor model for that. My dependent variable in the equation is the ...
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1answer
50 views
In search of nice (approx) function forms of the volatility of cumulative simple returns
Let's consider a period $t\in[0,T]$, and let the simple return over year $t$ ($1\le t\le T$) be $r_t$. Assume $r_t$ are iid normal. The cumualative simple return over the whole period $[0,T]$ is
$$R_T=...
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2answers
105 views
How is volatility different from variance?
I always thought volatility was just variance ^ (1/2). Now I'm reading this book and it's saying that the two are different concepts. Excerpts include:
Partly due to its use in Black-Scholes, ...
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1answer
68 views
Good references on Heston Model?
I am looking for good bibliographic references on Heston Model and Stochastic volatility models in general.
Does anyone know any good introductory/intermediate references on this topic?
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54 views
How rapidly should estimated volatility and volume change for estimating market impact in small markets?
The cost of market impact is usually modeled as:
$$
\Delta{P} = \delta \sigma (\frac{Q}{V})^{1/2}
$$
Where:
$ \Delta{P} $ is the change in price of the asset caused by the transaction size $Q$
$\...
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0answers
50 views
Poor results forecasting stock price volatility using Python's GARCH model
As far as I understand, forecasting stock price volatility should be more achievable than forecasting absolute prices or returns. It seems as though GARCH models are the traditional and most widely ...
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25 views
How to reasonably aggregate returns across both different assets and different time-horizons?
This might be a somewhat open question, so any suggestion of improvement is welcome.
Suppose at time $t=0$, we have $N$ different assets whose weights are $w_1,\cdots,w_n$ ($\sum w_i = 1$), and they ...
4
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1answer
93 views
Splitting theta from vol carry
What is the best way to splitting theta and vol carry on say a long calendar trade?
Basically trying to split the "good" carry component of a trade from the "bad" carry (theta) which could be earned ...
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42 views
implied forward price using put call parity
I am struggling to understand how to model implied volatility for German stock market. I found in one article that I have to specify first the forward price to which it is associated using put call ...
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1answer
69 views
How to calculate number of round trips given volatility?
Suppose we know stock price volatility is normally distributed with mean = 0 and annual volatility say 20%. Let's assume markets never close and we can trade at 1 second intervals. Let's assume stock ...
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48 views
Question about Bergomi's Model
I have a question pertaining Bergomi's modela and rough Bergomi's Model.
It seems that it is the second gerneration of stochastic volatility models, (after Heston), because they are 2d stochastic ...
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1answer
59 views
VXX Put pricing
Last week at Friday's close, the Dec 14 37.5 Put options were selling for \$.68 with VXX at \$40.29. This week at Friday's close, the Dec 21 37.5 Put options were selling for \$.38 with VXX at \$40.50....
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46 views
Calculating Intraday Volatility Using Tick Data
I have exchange tick data and I was wondering how to calculate intraday volatility without having to resample the data set (e.g. to 1 or 5 minutes).
I have a time series of n rows of the security's ...
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31 views
What is the use of undiscounted Futures/Option Prices
Reading the great book of Gatheral on Vol Surfaces (link) I can't help but notice that throughout he uses undiscounted option prices (though he obviously never assumed rates to be zero).
See e.g. ...
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3answers
168 views
arbitrage free volatility surface
Why is calendar spread arbitrage equivalent to $\partial_t \omega(k,t) \geq 0, \forall k \in \Bbb{R}$ where $\omega(k,t) = \sigma^2(k,t) t$ and $\sigma(k,t)$ represents the Black-Scholes implied ...
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1answer
57 views
implementing Volatility Managed Portfolios
How to I calculate the value of c in the vol-managed equation specified by Moreira & Muir Volatilty Managed Portfolios (2016) Equation 1?
Portfolio return in month t+1 =$$\frac{c}{RV_t^2}f_{t+1}$$...
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1answer
55 views
What is, here, the relationship between “compound” and “arithmetic return” and “volatility”?
I'm trying to find the exact (ie, not an approximate) relation between the "Compound Return", "Arithmetic Return", and the "Annualised Volatility" as given the assumptions below, and from there the ...
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1answer
43 views
Variance Swap : dividends and rates
In a simplified world you can assume that the var swap is replicated by a continuous set of calls and puts and interest rates are equal to zero. So your PNL is only sensitive to the volatility.
But in ...
3
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1answer
125 views
Fractionally Integrated GARCH
I am currently working on a project to compare different GARCH(1,1) models on a financial data set. I use the rugarch package in R, and everthing seemed fine at first. However, now that I have started ...
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1answer
44 views
Relationship between asset volatility and debt and equity value
So how I understand it, higher asset volatility implies a higher call option price. The Merton Model holds that the value of equity is a call option. This therefore implies that the equity value must ...
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1answer
85 views
Options on realized volatility / variance
If I'd like to price options on variance/volatility in the Heston model. Is MC simulation and/or finite difference the only way to do it? Or is there an analytical expression for the probability ...
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1answer
147 views
Realized volatility forecast vs Implied volatility
I have forecasts of realized volatility, as well as implied volatility for individual traded options of the S&P500.
I want to simulate a simple trading strategy; that is, buy signal=1 if ...
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0answers
77 views
Barra covariance matrix construction
I am trying to replicate the covariance matrix used by Barra risk models.
All Barra models have half life parameters for volatilities and correlations (e.g. if the half life for volatlity is 90 days, ...
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1answer
73 views
Variance-Covariance VaR: how to get the volatility?
Because the variance-covariance VaR assumes that the returns are normally distributed, in theory it is easy to get VaR by simply finding the mean and the volatility (standard deviation) of the ...
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0answers
48 views
Estimating daily volatility of unevenly/irregularly spaced time series data
Say I have time-series data that is unevenly spaced, with anything between 4-50 hours of spacing in between. The data comes from a trading account history, which has captured the balance of the ...
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0answers
38 views
target correlation for portfolio
Given a long / short equity portfolio, I want to have some net long exposure.
My portfolio volatility is fixed to a target, so in trying to have a certain beta to the market, the only thing I can ...
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2answers
95 views
Volatility Index for Industries
The VIX index is based on the S&P, I am wondering the feasibility of creating a VIX index for each of the S&P 500 Industries?
Would this even be possible?
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0answers
90 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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2answers
112 views
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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2answers
91 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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1answer
124 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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0answers
57 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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2answers
60 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
138 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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0answers
64 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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0answers
73 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
151 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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19 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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0answers
66 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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1answer
161 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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3answers
187 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 ...
3
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1answer
144 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
110 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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0answers
39 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
121 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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0answers
21 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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1answer
301 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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39 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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23 views
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 ...
