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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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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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 ...
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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-...
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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 ...
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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 ...
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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\...
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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
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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.
...
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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
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 ...
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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 ...
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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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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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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 ...
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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? ...
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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.
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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 ...
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0answers
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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 ...
2
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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 ...
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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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0answers
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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) ...
2
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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
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
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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
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 ...
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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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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
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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 ...
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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
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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
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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
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2answers
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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 ...
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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 ...
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2answers
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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
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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 ...
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1answer
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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 ...
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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
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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 ...
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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 ...
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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
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0answers
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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 ...
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0answers
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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
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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 ...
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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 ...
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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.
...
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0answers
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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 ...
