# 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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### Canonical choice of inputs for Black76 model?

What is the canonical choice of inputs (e.g. interest rate, forward price, option price, time to expiration, etc) for the Black76 model? For concreteness let's say on the SPX index. I am using the ...
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### Pricing an option on the spread of two contracts, what correlation parameter?

I must price an option on the spread of two futures (A-B) the model I must use uses the IV on the options of each futures. Another parameter I need is the correlation of these, what would be a ...
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### Incremental Variance Estimations on SPX

I am developing a program aimed at estimating the daily implied volatility of SPX using an incremental variance approach. My current methodology involves employing a root-finding algorithm coupled ...
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### Ratio of real world to risk-neutral density

Suppose I have a risk-neutral pdf and a real-world pdf of an asset. Both functions are related by a scaling factor or the sdf which would transform the risk-neutral into the real-world density, is ...
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### Portfolio volatility, for long short portfolio [closed]

Can anyone help me out regarding portfolio volatility? I tried asking chatGPT this prompt 4 times and all times it gave different answers lol. My calculations come out to be around 31%, but i think i ...
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### Calculating greeks for a combination of SPX and VIX options

I am trying to properly calculate the delta, vega and theta for an options strategy that involves buying a 90 day ATM SPX put and selling a 90 day ATM VIX call. Here is what I have done so far: SPX = ...
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I am trying to understand the effect of correlation between bid price and ask size with realized volatility (called targe_vol). Similarly, correlation between ask price and bid size with realized ...
1 vote
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### Change in Option Price given Change in Implied Volatliity, Moneyness, and Maturity

I have an implied volatility surface parametrized into moneyless-maturity coordinates. At each period of time, I only have access to an option's moneyness (K/S), maturity, and change in implied ...
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### How to properly calcualte Realized Variance for WTI?

I have several realized variances for WTI, RV, scaledRV, RSVN(negative) and RSVP(positive), which were given to me by a professor whom I cant contact anymore. When I try to calculate my own RV (in ...
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### Question about Example in Dynamic Hedging (Strong smile causing Put-Call Parity to not hold for American options)

On page 28 of "Dynamic Hedging" by Nassim Taleb, he uses the following example to demonstrate the fact that a rising volatility curve could separate puts/calls for American options because ...
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### Target Realized Volatility or Realized Variance in Forecasting

There are many academic paper doing volatility forecasts using realised variance and realised volatility interchangeably -- both targeting the proxy estimation of sum of squared returns (realized ...
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### Continuation of GARCH(1,1) without data

Please be easy on me since quant finance is not my strength. I have the following Python code that models volatility under GARCH(1,1) for the S&P500: ...
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1 vote
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### Log-normal mean reversion SDE

I study the Tataru-Fisher 2003 LSV model (implemented in the Bbg terminal for FX exotics pricing), the volatility has the following dynamics : $$dV_t = \kappa (1 - V_t) dt + \xi V_t dB_t$$ In the ...
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### Cross-day realized volatility

I've been looking for papers on volatility forecast, and most of them focus either on daily volatility (often using daily returns to access predictions for monthly volatility). Others focus on ...
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### The value of theta of an ATM option is proportional to the volatility, but for OTM/ITM options theta is not proportional to vol, why?

I have seen a graph of theta v/s volatility where the theta of ATM changes linearly with the volatility whereas for ITM/OTM options the theta didn't show a direct proportional relation with volatility,...
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### Market making - widening orders based on volatility, constant bps or multiply spread by factor?

let's say we are placing 5 orders on the book, top is tight, bottom is wide. When widening based on vol, do I add the same N bps to all orders or multiply the spread by X factor instead? Adding N bps ...
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### How can I apply the GARCH-MIDAS model to the FTSE MIB using the CPU as an explanatory variable?

I am trying to understand how climate risk impacts the financial market and I am calculating VaR and ES. I am applying the GARCH-MIDAS model to the FTSE MIB, using the Climate Policy Uncertainty Index ...
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### Complicated barrier options

We have the following contract consisting of barrier options: If $S_t$ is above the barrier level $B$ during the contract duration, we receive $N\cdot \max (S_T-4.45,0), 4.45>B$ from the bank, ...
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### Improving Portfolio Optimization on a Mean-Variance Basis

Is there a point to conduct research to improve mean-variance optimization (MVO)? Because I understand that most of the poor performance in MVO is a result of the estimation error in expected returns. ...
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1 vote
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### Multivariate Markov Regime switching GARCH in R

I am looking for R package handling Multivariate Markov Regime switching GARCH models, but MSGARCH package only work for univariate time series. Any suggestion would be welcomed, thanks!
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### How to calculate historical returns and variance for a non-BAH trading strategy?

Suppose i have a strategy that is not buy-and-hold type of strategy. It can have unique entry timing and unique exit timing for a single asset and both long and short positions will be allowed, and ...
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### GARCH before and after a shock. How to test if volatilities are different?

I have an intraday dataset with minute returns for a bond. At a specific point in time, say 10:30, there is an external shock (in my case an auction where that bond is traded). I want to know whether ...
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### Implied forward volatility definition

What is the rigourous definition of the 'implied forward volatility' and how is it calculated? I couldn't find a rigorous definition as would be the case for 'implied volatility'. Also, could anyone ...
167 views

### Question about marginal risk contribution / portfolio volatility decomposition

I am trying to understand the rule where you add a new asset to a portfolio if its Sharpe ratio is greater than the product of the portfolio sharpe ratio and the correlation between the portfolio and ...
1 vote
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### How should I go about computing the 30-day model free implied volatility (MFIV) daily?

As the title suggests, how can I calculate the MFIV daily (for a market index)? My MFIV follows the procedure described in DeMiguel et al. (2013) Improving Portfolio Selection Using Option-Implied ...
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