Questions tagged [volatility]

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

718 questions
87 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)...
113 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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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. ...
97 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 ...
87 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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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% ...
646 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 ...
46 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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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, ...
105 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 ...
97 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 ...
118 views

Discretizing a Continuous Time Stochastic Volatility Model

How does the discrete time stochastic volatility model arise from the continuous time one? Also, forgive me for cross-posting. I have the following continuous time SDE for a stochastic volatility ...
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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 ...
116 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 ...
26 views

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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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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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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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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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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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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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 ...
74 views

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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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 $100 stock. You think the stock ... 1answer 74 views SPX Convexity Spread In this report on volatility from BNP Paribas, https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true it states on Page 10 that the SPX ... 0answers 14 views DCCfit speed up formula I am estimating the covariance matrix by using GARCH DCC model with function dccfit from package rmgarch. My code is something like: library(rugarch) library(rmgarch) ... 1answer 241 views Comparing historical to implied volatility As title states, I am trying to compare historical to implied volatility of a stock. I approximate the single implied volatility (30 days forward) of the stock by first finding 2 series that ... 1answer 541 views Which volatility as input in Black Scholes formula? I am trying to price an option on an Index using Black Scholes formula. I estimated the daily volatility$\sigma_{day}$. My question is should I use an annual volatility based on the business days of ... 0answers 48 views Mix a Forward Delta Premium Adjusted and a Forward Delta to construct the volatility surface I have two brokers who give me delta strategies for USD-COP, but one of them gives me the issue with forward delta, the another one is premium adjusted. Besides, how can I mix them for construct a ... 2answers 304 views Vol swaps Vol of vol I an quite unfamiliar with those products and would like to understand why they require a vol of vol model for pricing. The variance swap is replicated (assuming no cash dividends) with a delta hedged ... 1answer 94 views Can someone explain the 6 alternative volatility measures? I'm reading this: https://www.cmegroup.com/trading/fx/files/a_estimation_of_security_price.pdf and am a bit confused as to why the "classical equation" on page 3 does not divide by n-1 nor use the ... 2answers 112 views Portfolio volatility of discontinuous portfolio I would like to calculate an investor's average portfolio volatility as a measure of risk aversion. My problem is, that the portfolios are not continuous: the investor can have an open position for ... 1answer 709 views What is the importance of alpha, beta, rho in the SABR volatility model? I just read that SABR model is a stochastic volatility model, which attempts to capture the volatility smile in derivatives markets. The name stands for "stochastic alpha, beta, rho", referring to the ... 0answers 66 views Vega with SVI Gatheral bumps How would one go about computing a vega profile of an exotic derivative where the volatility surface is modeled using Gatheral's SVI parameterization? In particular, I am thinking about bumping each ... 1answer 227 views Backtest with rolling volatility in R So I'm very new in R. I want to backtest a strategy for 3 stocks SPY, EEM, AGG. With library(RiskPortfolios), I can calculate ... 1answer 77 views Implied volatility of inverse quote Suppose I have a quote of INR/USD and the implied vol surface is also given. Is it theoritically correct to use to same implied vol for analysis of the inverse quote, i.e. USD/INR. Correct me if I am ... 0answers 102 views Monte Carlo simulation based VaR: daily vs annual parameters I am given the initial price, annualized return, and volatility of a security. I am trying to calculate annualized VaR using Monte Carlo simulation approach. To do this I will use the following ... 0answers 50 views Replication error of a long dated product My question is a bit general : Hedging/Replicating a long-dated (FX) product with short-dated (FX) products leads to a replication/hedging error most of the times. Is it possible to quantify this ... 0answers 200 views Derivation of the Pnl of a Delta Hedged Straddle and Risk Reversal In the link below, in the text it states the following equations: Delta-hedged straddle P&L = Volatility Risk-premium ×| Straddle Vega | and Delta-hedged risk-reversal P&L: ... 1answer 179 views Difference in exposure between delta hedged options, ATM straddles and delta hedged straddles What is the difference in exposures between delta hedged options, ATM straddles and delta hedged straddles. They all seem to provide the same thing, which is exposure to volatility. What are the ... 2answers 145 views The BISAM fat-tailed volatility model vs EWMA volatility model Came across the following marketing material where the company called BISAM (FactSet) aka FinAnalytica (?) has developed following fat-tailed volatility model: $$r_{t} = \mu + \epsilon_{t}$$ $$\... 3answers 1k views Problems with local volatility models (vs stochastic volatility models) Why is pricing with local volatility models are problem with exotics, mainly due to "the volatility surface is the market's current view of volatility and this will change in the future meaning the ... 1answer 357 views Value of Call Option as Volatility goes to Infinity Why would the value of a call option go infinity as volatility goes to infinity? I understand how you could solve this question by taking \sigma \rightarrow \infty in the solution to the black ... 1answer 182 views Which program for a DCC-MIDAS model? for a thesis research, I plan to use a DCC-MIDAS model. The program I was working with (STATA) is not able to run this. Do you have any suggestions as to which program is best for this analysis? ... 0answers 75 views Which stats are the best predictors of model sucess in real time? [closed] What are the best predictors of real time model success in quantitative trading, i.e. # of transactions, length of backtest, StdDev, Skewness, Excess Kurtosis etc and what are the numerical values of ... 1answer 103 views Mixing Black Scholes with SABR I am new to the whole concept of stochastic volatility so I am experimenting with option pricing. I think the concept is really difficult to understand / grasp. I was wondering if the following ... 0answers 61 views Pricing and hedging OTC vanilla options Most OTC option textbooks are about exotic options. I'm curious how sell-side price and hedge OTC vanilla options e.g. European option. What models do they use? How to forecast volatility (using GARCH?... 0answers 72 views Calibrating Heston paremeters based on market data for Implied Vol for Call options Several questions have been asked in here regarding calibration in Heston yet I have not found what I have been looking for, so I will ask: I am looking at a Heston model:$$dS_t=\lambda \sqrt{v_t}... 1answer 139 views Proof for ATM delta with Local col I am looking at a time-homogeneous local volatility model where ATM implied volatility equals ATM local volatility:$\sigma_{imp}(S_0)=\sigma_{local}(S_0)$ATM IV Skew = half of LV slope In general$\...
In Bergomi [Stochastic Vol Modelling] (Sec. 2.5.2), in the section on surface dynamics, the following definition of the "Skew Stickiness Ratio" (SSR) is made:  SSR = \dfrac{1}{\mathcal{S}_T}\frac{d\...