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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Investigating the relationship between mutual fund alphas and market volatility

I am writing a master thesis on the relationship between mutual fund alphas and market volatility. As I have never performed an empirical analysis before, I would like to have some opinions on the ...
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Implied volatility of Treasury options

For practitioners, does the concept of implied volatility also apply to (European) Treasury Options (whose underlying is Treasury Futures contracts)? For the standard individual stock vanilla ...
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Interpolation of SVI Implied Volatility in parameter space

I am currently working with a slice-wise SVI parametrisation of the implied volatility surface. $\sigma^2(x,t) = a_t + b_t (\rho_t (x - m_t) + \sqrt{(x - m_t)^2 + \theta^2})$ Does anyone have ...
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Calculation of the risk free rate

For portfolio management I need the risk-free to compute the sharpe ratio. I would like the use to rate on the 3 month treasury bill from the US. https://fred.stlouisfed.org/series/TB3MS#0 The ...
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Volatility Skew Theory

This is the case for equity options, however for foreign exchange options the volatility only decreased at ATM. Why is it that the vol used for one type of out/in the money is higher than the other, ...
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Cross Effect in OLS

I am using cross effect in OLS regression for a time series problem for a multivariate regression. I want to quote reference for use of cross effect. Secondly, I want to explain why better to use ...
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How can i fit the following regression in R? Why is the coefficient [second Columns] for R so low?

'Rwml' is the monthly log return So the first column is clear, I got nearly the same values, at least the same magnitude. But: If I regress on the variance, my input values are way too low to get a ...
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How to forecast monthly volatility with daily gjrGarch estimates

I'm currently writing a paper and need to regress the 22 days realized volatility of the following month on its GARCH estimate and the 126days realized volatility up to t=1 The paper im referring to ...
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Going from normal to Log-normal implied volatility

Let's denote the Implied normal volatility (Bachelier) as $\bar{v}$, and the implied log-normal (Black Scholes) as $v$. When everything else is known (spot, strike, maturity, rates etc) how can you ...
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57 views

Interpretation conditional volatility plot

I have plotten the log differences of exchange rates and in the same plot, I show the conditional volatility $\sigma_t^2$. The conditional volatility follows approximately the same path, but is much ...
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Calculating historical volatility and returns from bond yield

I am interested to calculate the historical volatility and returns from a time series of US 3m T-bill yield (see screenshot below), for portfolio optimization. I am not too sure how to bridge the idea ...
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Fitting to Market Data in Extended Vasicek / Hull White

I need your help for my task. I need to calibrate to the market data for Hull White model for Zero Coupon Bond Price. I refer to John Hull and Alan White paper. I want to ask you a few questions and ...
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What is the model behind Heston-Nandi functions in the fOptions R package?

I am dealing with Heston model in R and for this purpose I am using the package fOptions from RMetrics. The calibration formula requires the specification of some parameters (omega, lamda, alpha, ...
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How is a LIBOR Market Model volatility skew determined?

LIBOR based interest rates are derived from the prices (supply / demand) of swaptions, caps and floors. These prices are generally quoted in yield vols. Their prices are given by the Black formula. ...
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121 views

Multivariate Markov Regime switching GARCH

I have a regression with 4 independent variables and a dependent variable. I want to implement a Regime switching GARCH model but have been unable to find a package in R,Python or Matlab. MSGARCH ...
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Rolling forecast using GARCH model

EDIT This is not a duplicate of my original question linked, since I have since overcome that problem and have posted an answer. Since solving the previous problem, I have run into the problem ...
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103 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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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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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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166 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 ...
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164 views

How to estimate $\sigma$ and $r$ in binomial pricing model?

I am writing a program to price American put options with binomial pricing model and to compare it with the market price. When I used made-up numbers for $\sigma$ and $r$, the price by binomial ...
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136 views

Are “stylized facts” based on reliable evidence?

A highly cited article "Empirical properties of asset returns: stylized facts and statistical issues" by R. Cont use the Figure 8. below to illustrate the well-known phenomenon of volatility ...
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234 views

Volatility vs. Moving Average Distance

Currently I am designing a little market making bot for forex trading, that puts offers around the mid price. In the market I am trading it happens the order book becomes so thin that the mid price ...
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Monte Carlo volatily

I was wondering if we could do a forecast on volatility using monte carlo on an underlying asset. For example EUR/USD : Simulating a lot of possible paths on 1 year then calculate the volatilty for ...
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154 views

Black Variance Surface

I came across black variance surface in quantlib code. For options, usually volatility surface is used for pricing. When you will use variance surface for pricing or any advantages over volatility ...
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Estimating volatility

Why is $$\frac{ \left(\frac{ \Delta S}{S}\right)^2} {dt}$$ an estimator of volatility squared (as claimed by my book)? As far as I understand it, we estimate volatitility squared as $$\frac{ Var( \...
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Caplet and Swaption Volatilities

Why is volatility always quoted in terms of caplet and swaption? Why not quoted in terms of other instruments?
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Approximating an SDE for Volatility Estimation

Consider the SDE $$ dT(t) = ds(t) + a(s(t) - T(t))dt + \sigma dW(t) $$ where $s(t)$ is a deterministic function that turns out to be the long-term mean (this SDE is used to model daily temperature, so ...
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137 views

Stochastic Volatility for Stocks, FTSE

Can someone help me with calculating Stochastic Volatility (of stocks and options) using SAS or R or Matlab please? I am new to SAS and I am trying to use Heston model, White-Hull model or any other ...
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171 views

Implied volatility in parametric VaR

I'm calculating 1-day parametric VaR estimates for a stock index under the simple assumption that the returns are normally distributed. My question is, what is your opinion of using a volatility index ...
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600 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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Quanto derivatives and FX risk management

Let us assume that we have a foreign asset with volatility $\sigma_{ASSET}$. Now, I know that when pricing this under the foreign measure, I need to do a drift adjustment, namely $\sigma_{ASSET NEW}^2 ...