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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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Calculating realized volatility of high-frequency data

I am wondering how to calculate the realized volatility. Sources such as say that the realized volatility is the sum of squared log returns sampled at a given frequency. So using 30 minute frequency ...
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Implied Volatility of cross currency pairs

Been looking for this... Is there any way we can infer directly, say GBP-JPY's 1-year volatility from GBP-USD's and USD-JPY's? Many thanks.
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Fund volatility with mixed frequency returns

I have to calculate a bunch of risk, return and correlation statistics for a fund which has 5 years of weekly returns but the 1st 4 months of returns history only have a monthly frequency and the 1st ...
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113 views

GARCH-ARCH relating conditional volatility to unconditional volatility

After comparing the inferred conditional volatilities from GARCH models (using Matlab) with the unconditional volatilities from the actual training set, I noticed that although the general trends ...
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What is the name of this VaR calculation strategy?

Here's a question on a passage from this paper I'm reading. Here's the quote: Given the vector of portfolio weights $w$, and the estimate of the conditional variance, $\Sigma_{t,k}$, the ...
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1answer
119 views

Settlement of VIX derivatives

Currently reading the paper of John M. Griffin and Amin Shams "Manipulation in the VIX?". My questions has to do with settlement of VIX derivatives (options and futures on VIX). The paper states that ...
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How to derive the change in portfolio value as given by Gatheral in The Volatility Surface?

I’m trying to follow Gatheral’s Volatility Surface Ch. 1, i.e. the text (pg. 5 and 6) linked to in this question, with further text discussed in this question. I can’t figure out how to arrive at the ...
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276 views

GARCH modeling - sliding or expanding window?

In practice, when modeling volatility do people tend to use expanding or sliding windows to fit GARCH models? For example see rolling forecast generation vs recursive forecast generation in the ...
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179 views

Why is Bachelier implied volatility more skewed than the Black-Scholes implied volatility?

I found the following explanation in a paper by Grunspan (see attached paper page 6) but have trouble understanding it: By differentiating Formula (3) with respect to m, it turns out that the ...
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Why hasn't SVXY recouped more of its lost value as vol has crashed in the past 2 weeks?

SVXY fell from around \$140 to \$9. It has since bounced back 25% to around \$12. Vix futures went from the 11-14 range to 35 and now back to 17-18. SVXY holds a short position in Vix futures with ...
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1answer
212 views

Manipulation of VIX

Having finished my reading on CBOE's method of calculating the VIX on out of the money call and put options written on S&P 500,I have a thought about the ability of market making firms to ...
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Nature of short VIX strategies

By now, we all pretty much know that the recent upsurge in the VIX Index caused the spectacular failure of some Exchange-Traded Products (ETPs) or Exchange-Traded Notes (ETNs) written on it. An ...
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Frequency Arbitrage

We know that the volatility is lower when the sampling period is longer, for example $\sigma_{7days} < \sigma_{1day}$, Then I came across this strategy that I cannot quite understand how to exploit ...
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212 views

Excel Add-In Volatility Interpolation I am trying to Understand

The Microsoft Excel at my investment bank has an .xll add-in with a function whose coded functionality I cannot observe. This function is called VolInterp and as the name suggests, calculates the ...
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Estimate VARMA(p,q)-GARCH(r,s) model

Can I estimate VARMA(1,1)-GARCH(1,1) model using R? please suggest any package or chunk of R-codes to estimate this model. Thanks
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What does multifrequency volatility mean?

I came across the term "multifrequency volatility" while reading the book "Multifractal Volatility: Theory, Forecasting, and Pricing" (2008) by Calvet and Fisher. Can anyone help me understand what ...
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424 views

Volatility Target Optimization - Python

I'm testing a volatility target strategy in Python. This process involves solving the following optimization problem at each rebalance date $$\min_w \left(w^T\...
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191 views

ATMF Volatility Surface. Read off vol for Options on spot and vol for Options on futures contract

I have a ATM-Forward volatility surface for commodity. It looks like this: Tenors: Tenors refers to the time-to-maturity of a option on futures contract Strikes: ATM-Forward refers to the futures ...
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131 views

what's the difference between market implied volatility and implied volatility?

what's the difference between market implied volatility and implied volatility, how it could be calculated? also what's the quoted implied volatility? thanks.
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How did the SVXY ETF (-1x VIX) survive a 115% jump in VIX?

The SVXY ETF is a "-1x" short exposure to the VIX, rebalanced daily. Very importantly, it is an ETF, and not an ETN. As an ETF, its holdings are fully transparent and posted on the fund sponsor's ...
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What can cause autocorrelation in higher lag orders of returns?

I am fitting an AR(p) model to the daily time series of S&P500 returns. I have examined AIC/BIC up to 5 lags and both show that model with 2 lags is optimal. However, when I examine the residuals ...
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1answer
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Why do traders think about options in terms of volatility? [duplicate]

I hear that in practice, traders quote options prices in terms of volatility. What is this convention, and what is the motivation? How do they think about and manage vega risk?
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What is meant by innovations in volatility?

I am currently reading about stocks with "high sensitivity to innovations in aggregate volatility". I am not a native speaker so this might be a trivial question, but I truly cannot find an answer ...
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Data on Options on US-Treasury Futes

I am working on an assignment on the Implied Volatility Surface for the options on US-Treasury futures (ZB, ZN, ZF, etc.). I need data on bid and ask, Imp. Vol, Price of underlying etc. Do you know a ...
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214 views

Pricing VIX Futures

In a 2006 paper Zhang and Zhu propose a model for VIX and VIX Futures based on Heston. I am struggling in understanding how they get equation 6 and 8 (where they define the parameters). Can anyone ...
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1answer
143 views

SVI Zeliade Vol Surface Calibration

Have a question about SVI Zeliade Implementation (pdf, overview). The paper suggested to do 2 rounds of optimization, first for $\{a,b,\rho\}$ and 2nd for $\{m,\sigma\}$. Does anyone know if I can ...
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Historical Volatility Between Two Price Points

I would like to calculate the historical volatility of the difference (basis) between two geographic price points for energy futures assuming a normal distribution. I am unsure as to the approach I ...
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Spread in Option Quotes

Let's take a look at market-maker's option quote in vol terms: 8.5 / 9.5. In that example bid-ask spread equals 1.0 point of vol. Can anybody clarifying how market-maker choose amount of spread in ...
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How do I apply Fuzzy-GARCH to forecast real data?

I am currently working on fuzzy-GARCH to forecast. I would like to know how this can be done starting from scratch using an example (including obtaining consequent parameters). Next, how do I get two ...
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How can I compute a realized variance for raw instead of log returns?

Whenever I read about calculating realized variance, people are using log returns. However, I was asking myself whether it is possible to calculate realized variance also for simple, raw returns. ...
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1answer
226 views

Should the geometric standard deviation be used to compute the volatility of financial returns?

When computing an average financial return over time (rather than cross-sectionally), the geometric mean is generally preferred to the arithmetic mean because it accounts for the geometric growth ...
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1answer
131 views

Criticise GARCH relative to Realized Volatility

I would like to have your opinion about a simple question. While GARCH would be useful to calculate the conditional volatility, and the RV being in some sense the "historical" volatility, what would ...
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2answers
821 views

Local vol, stochastic vol, implied vol

I've been studying volatility modelling over past the few days; in particular, the connections between local vol, stochastic vol, implied vol. I've been reading Gatheral's book "The volatility surface"...
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Measure how different forecasted volatility is from realized volatility

Hi Quantitative Finance Stack Exchange, I'm looking for an opinion on a simple question. Suppose I use a Garch(1,1) model to make a volatility forecast. At time $t$, I have realized volatility $\...
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1answer
189 views

Understanding how market making helps investors

I'm reading about high frequency trading and market making. I'm trying to understand the following example from my book: Here is an example of how market making helps investors. Suppose that the best ...
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1answer
241 views

Leveraged Permanent Portfolio Using ITM Call Options

The permanent portfolio proposed by Harry Browne has had an excellent track record since the 1970's. It is able to compound at roughly 8% annually with a Sharpe ratio around 0.7. The permanent ...
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246 views

talib.ATR or other ATR calculation

I have my data stored in df1 with the columns: Date Time Open High Low Close Vol OI I want to calculate the 20 period ATR from ...
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293 views

What's volatility timing?

I'm new and i'm starting studying finance. My english level is not so good. Could you explain me please, what is volatility timing? Thanks to all
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volatility adjustment on momentum

I am trying to figure out what this text means any advice is greatly appreciated. "volatility-adjusted crossover signal where momentum is measured by comparing a short-horizon (45 days) moving ...
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The sign bias test isn't significant but still use EGARCH

I'm Risqia from Indonesia. My final task is calculating VaR using EGARCH.. all of the p-value in sign bias test more than 5% so the null hypothesis isn't rejected, it means that the residual is ...
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1answer
109 views

Use of Historical Volatility in Black 76 Model

I am trying to use the Black 76 model to calculate the price of a bond option. Is it possible to use the historical volatility of the bond prices (say standard deviation of the log returns over the ...
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1answer
404 views

Volatility Forecasting of VIX

Background: As we know, volatility in the long run is mean reverting. Given that volatility is mean reverting, when volatility is low, it tends to go up. When it is high and going down, it tends to ...
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volatility term structure calibration

As is well known in order to calibrate an interest rate model (i.e. hull-white, LMM) i need to use the current market yield curve and volatility. But in the case I want to calibrate the model in a ...
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Equity Options - “How do I build a forward simulation model with regards to shocks in spot pricing and IV?”

I am trying to build a "What-If" Portfolio, consisting of a total of 20 options, across different tenors, strikes (delta), but on the same security. Simply put, the objective is for me to test the ...
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Is variation in price-dividend ratios that is attributable to excess returns due to variation in returns or variation in risk free rates?

Cochrane and Fama show that "all variation in price-dividend ratios corresponds to changes in expected excess returns -risk premiums- and none corresponds to news about future dividend growth". Is ...
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1answer
216 views

Volatility of stocks small cap vs large cap

I read that small cap stocks are more volatile than large cap stocks. Now I am looking for sources (e.g research papers or similiar) with empirical evidence for this proposition but I can't find any (...
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How to generate variance impulse response function as in Hafner and Herwantz (2006)?

I am trying to generate variance impulse response functions as described by Hafner and Herwantz (2006) and in Walter Enders' book "Applied Econometric Time Series". Is there a command in R for this? ...
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VaR of future foreign currency income stream

Assume I have a series of future incomes in a single foreign currency. How do I calculate the total VaR for this forex risk using the volatility method? My first thought was that I could simply add ...
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117 views

XIV Positive Roll Yield

I understand that VIX futures are usually in contango and so a portfolio that holds futures with a weighted average expiration of 30 days will "roll" down to equal the VIX index at maturity. This is ...
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Why are some Yang Zhang constant k different from the original paper?

I've seen this in the original paper (Yang, Zhang: Drift Independent Volatility Estimation ...) (see Equation 10, Page 483) $$k = \frac{\alpha - 1 }{\alpha + \frac{ n + 1 }{ n - 1 }}$$ while there ...