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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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280 views

MTM Hedging Performance of Vanna-Volga

I was wondering how well Vanna-Volga (VV) Implied Vols "perform". So I experimented with the following option parameters $$S_0=100,\ K=92,\ r=0.03,\ q=0.01,\ T=2$$ and VV parameters $$K_1,K_2,K_3=...
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173 views

Volatility swap hedge

What are the hedging methods for volatility swap (rather than variance swap)? What are the possibilities of setting up a static, semi-static or dynamic hedging? I am aware of but have not yet read ...
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1answer
61 views

Volatility of a leveraged CFD portfolio

I want to calculate the portfolio volatility (as a weighted average of the products) and the portfolio consists of CFD contracts with multipliers ranging from 10 to 50 depending on the underlying ...
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93 views

How to deal with no-arbitrage violations to fit the volatility smile?

I have a database of options for single stocks, with a lot of aggregated data. I noticed that sometimes (especially for stocks with few points) I have a concave volatility smile because of an outlier ...
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1answer
82 views

Comparing volatility of a specific period between days

I have 1 minute trade data for a particular stock and was wondering how I can compare the volatility of a particular period (08:00 - 09:00 for example) between days. I have data for 100 days and want ...
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1answer
155 views

On a FX volatility smile, Is a-delta put volatility equal to (1-a)-delta call volatility?

On a FX volatility smile in terms of delta, If I want 95-delta put vol, Is this volatility equal to a 5-delta call vol, and viceversa? Thanks.
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1answer
151 views

Deriving Delta Hedge error in the B-S setup (part 2)

In this paper paper page 16-19 by Davis and this discussion derivation of the hedging error in a black scholes setup, the derivation of the delta hedging error in the Black Scholes model is discussed. ...
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1answer
329 views

Local Volatility implementation

The Dupire equation is well-known and mentioned in thousands of articles. Although I could not find a lot of documentation about a consistent and proper way of implementing the formula (The difficulty ...
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82 views

Changing the frequency of 5-min returns/realized volatility of different products

I stumbled upon a problem of converting the returns and volatility of high frequency data to daily ones. I start with 1-minute returns, then calculate the 5-minute realized variance as the sum of the ...
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2answers
564 views

What is the difference between squared returns and variance?

I am trying to calculate 1-day ahead volatility forecasts using the exponentially weighted moving average, however I am unsure on how to read the formula provided within Risk-Metrics Technical ...
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30 views

Volswap: fair strike and number of fixings

Let’s assume 1y vol is at 10.0% and there is no skew and the term structure is flat. Let’s assume there are 252 fixings and the annualisation factor is 252. 1) In a BS world, is it correct to say ...
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96 views

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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73 views

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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21 views

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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154 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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1answer
112 views

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
125 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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54 views

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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325 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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191 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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45 views

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
216 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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2answers
109 views

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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178 views

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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1answer
252 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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0answers
51 views

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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2answers
526 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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0answers
219 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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1answer
144 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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3answers
453 views

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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116 views

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
78 views

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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2answers
221 views

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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1answer
104 views

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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1answer
259 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
168 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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29 views

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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66 views

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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95 views

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
285 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
147 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
995 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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0answers
102 views

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
219 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
263 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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1answer
265 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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2answers
347 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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1answer
78 views

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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1answer
124 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 ...