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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50 views

Where can I find a source that futures traders use ATR and stock traders use log price ratio standard deviation to calculate volatility?

In the wikipedia article about the average true range, I can find the following statement: Since true range and ATR are calculated by subtracting prices, the volatility they compute does not change ...
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How is Volatility Box calculated?

https://www.youtube.com/watch?v=-_d6wkNV-AI I see this indicator. But I don't find a math definition of it. Could anybody show me how it is defined exactly? Thanks.
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How to measure accuracy of SABR volatility surfaces?

I would like to test how accurate are SABR volatility surfaces with respect to historical volatility over a given time period and for a specific equity index. Reading a few papers I realised that one ...
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Autocallables under LSV

I’m looking at prices of Autocallables under Local vs. Local-Stochastic volatility. The stochastic part of my LSV model is driven by the Heston model. Increasing the volatility of variance parameter ...
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Industry standards for vol control index options

Consider an index of the type: $I(t)/I(t-1) = 1+ a(t) (S(t)/S(t-1)-1)+(1-a(t))r(t-(t-1))$ It is arbitrarily initialized. $r$ is the risk free rate. a(t) is determined piecewise as: $a(t)=s_{target}/s_{...
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108 views

Difference of polynomial interpolation for volatility smile

I am using 5 volatility points to build a volatility smile : put 10D, put 25D, ATMF, call 25D and call 10D. I have thus 5 pairs of data : (Delta, Vol) let's say for example (10;5.75) ; (25; 5.50) ; (...
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Sharpe Ratio of a Long-Short Portfolio

I have a portfolio High and Low (according to the highest profit). From this I have formed my long short portfolio and calculated my Sharpe Ratio. How to interpret this correctly? Does a positive ...
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If the volatility of pounds/euros = .2 do we know anything about the volatility of euros/pounds?

I think the question here is what we know about $\mathrm{Var}\left(\frac1X\right)$. Is this the right question to ask, and if so is there anything that can be said?
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Volatility targeting / sizing for option strategies

I am trying to work out how to properly size an option strategy to a given target volatility. Assuming I have \$100 capital and I would like to have a strategy's long-run daily volatility to be \$1 (e....
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Construction of vol term structure for Libor

When we want to construct Interest rate term structure we look at various market instruments like futures, swaps etc. and using ...
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GARCH(1,1) parameter estimation optimization method

In estimating a GARCH(1,1) model, $$\sigma_{t+1}^2 = \omega+\alpha \epsilon_t^2+\beta\sigma_t^2$$ Usually the parameter tuple $(\omega,\alpha,\beta)$ is estimated by the quasi-maximal likelihood. ...
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Ito's lemma results in negative volatility processes

I struggle with the interpretation of a process I derive from Ito's Lemma. Let's say I have function f(S,t) which is twice differentiable wrt S. I thus can apply Ito's Lemma to get $df(S,t)$. So far ...
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GARCH parameter estimation by linear regression?

In estimating a GARCH(1,1) model, $$\sigma_{t+1}^2 = \omega+\alpha \epsilon_t^2+\beta\sigma_t^2$$ Usually the parameter tuple $(\omega,\alpha,\beta)$ is estimated by the quasi-maximal likelihood$. Can ...
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Realized Volatility + GARCH - can I use hourly realized volatility?

I hav minute bar FX data and I am trying to fit a realized variance GARCH model using rugarch. This normally works by providing daily returns and daily realized volatility to the model. Realized ...
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GARCH calibration with overlapping time intervals

In constructing a GARCH(1,1) model over a time length $\delta$, I am considering the following procedure. The purpose of this procedure is to give more training (calibrating) samples than non-...
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Where can I find caplet implied volatility data?

I am looking for caplet implied volatility data for Libor-EUR. Is there any online data base etc. available to get such data? Does ...
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QuantlibXL - How can I define a volatility surface using moneyness instate of strikes?

I wonder if in the function qlBlackVarianceSurface() I can replace the strikes for moneyness and then price the option using the spot = 100% and the option strike = Original_Strike / Original_Spot. ...
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Contribution to Mahalanobis Distance

I am using Mahalanobis Distance to measure abnormal behavior within a portfolio consisting of a handful of general asset types, and am trying to figure out how to decompose this measurement into ...
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Delta hedge analysis - volatility rapidly growing

I'm working with a hedge expirement design, where I daily hedge with EGARCH(1,1) forecasted volatilty based on a moving evaluation of the past 126 days. However, I can't seem to understand the profit ...
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Free Arbitrage conditions in ATM swaption surfaces

I'm wondering how can we check free arbitrage conditions in ATM swaptions surfaces since we only have access to Expiry, Tenor and volatility? Can someone help me please, i didn't find any article ...
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Perfect in-sample size for out-sampling volatility prediction (EGARCH(1,1)

I have a few questions regarding in-sample size for volatility forecasting in EGARCH(1,1). I'm currently sitting with a dataset consisting of 1387 trading days of the S&P-500 index. I would like ...
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239 views

Realized Variance (realized volatility)

I'm confused about realized variance. I roughly know the theory around Ito Calculus and quadratic variation and integrated volatility so I understand what realized variance measures (even though as ...
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How to estimate lambda from NAGARCH submodel in R

I am trying to estimate the model="fGARCH", submodel="NAGARCH" from the rugarch package in R. However, when I am estimating the parameters, only omega, alpha, beta and gamma are ...
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Intraday volatility pattern of Emini

I have the series of 1-min logarithmic returns of Emini future from 2007 to 2020 I calculated the standard deviation of each return at a fixed time of day and then I plotted the results (see image). I ...
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Calculating E^2[σ^2] where σ is a GARCH(1,1) Proces

Given that α =0,113079 β = 0,873884 ω = 0,0000081 Need the calculate a call price using garch volatility I alsa calculated the kurtosis = 235 enter image description here: https://www.researchgate.net/...
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Market price versus theoretical price of varswaps

When I traded varswaps several years ago, for some indices there was a significant mismatch between market price and theoretical price. The theoretical price assumes continuous monitoring and infinite ...
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Realized volatility calculations from real dataset

I am working with a dataset from: http://web.math.ku.dk/~rolf/Svend/ named data 1. I'm currently setting up a delta hedge for periods of 3 months. So currently we are starting at the start data of the ...
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Skewness and Kurtosis in GARCH vs Heston

GARCH(1,1) In discrete time, we can model returns as follows \begin{align} r_t &= \mu + \sigma_t\epsilon_t\\ \sigma_t^2 &= \omega + \alpha \epsilon_{t-1}^2 + \beta\sigma_{t-1}^2 \end{align} ...
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142 views

The most appropriate volatility model

Which would be the most appropriate models to find volatility trading opportunities (i.e. plot a theoretical volatility smile I can rely on) for the following instruments: Options on equity Options ...
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In Pairs Trading: How can high volatility in spreads be explained when there is a market shock?

In my project I tested a Pairs trading strategy in the US equity market for data of 10 years. These 10 years include the financial crisis (2007-2008). The strategy follows a Cointegration approach. ...
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looking for recommendation for a var/vol swap trading book

I am aware this book - volatility trading by Euan Sinclair, and it's nice book. But I am looking for book focus on var/vol swap trading, i.e., introduce about trading strategy/ideas by using var/vol ...
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Reconciling Two Claims About Volatility Under Fat Tails

I have read the Wikipedia article on volatility, and Nassim N. Taleb's Incerto, and found two statements attributed to Mandelbrot's views, which appear to be in contradiction. Taleb (who was mentored ...
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High Beta, low specific risk, and no leverage?

My risk model shows a Beta of 2 for the stock APTIV (maker of car components). The model looks at the past 3 years with no decay. Total vol is high but specific vol is very low. Typically when this ...
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How skewed are FX returns? Does this look like a plausible histogram of EURUSD?

I'm reading about volatility. I've charted the histogram of EURUSD and I am wondering if this looks plausible? What I've charted are the 1-hour percent change returns (not log returns). I've removed 0 ...
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Correct terminology - estimate or model?

I am doing some academic work and I'd like to summarise the picture around volatility models. As such, I'd like to refer to several ways of estimating volatility and I'd like to use proper terminology....
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Volatility for options pricing: fixed window or match maturity?

When calculating the volatility or covariance matrix of stock returns for the purpose of pricing a vanilla option on an underlying, it is difficult to choose the window over which the volatility ...
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Understanding GARCH

I asked this on stats.stackexchange but I realized this might be a better place to ask this question. I am new to finance and volatility forecasting and am trying to understand how garch model works. ...
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Implementing a Variance Swap Hedging in R

I am trying to compute a hedge for a variance swap, in a simulation. Fo that I am using the following equation:\begin{align*} E^Q\bigg(\sum_{i=1}^n \bigg(\frac{S_{t_{i}}-S_{t_{i-1}}}{S_{t_{i-1}}}\bigg)...
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forward variances under rough bergomi

I have seen in several papers on rough volatility using the following expression for the forward variances $$ d\xi_t(u) = \xi_t(u) \eta \sqrt{2H} (u-t)^{H-1/2}dW_t $$ Can anyone explain to me how this ...
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How does one obtain a realistic range for the VIX using its volatility if it is at its multi-year low?

Suppose the VIX index is at a hypothetical multi-year low of 15, yet the volatility of VIX has a reading of 100. If one were to surmise from this volatility of VIX a range for the VIX over the coming ...
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The put-call parity have to be fulfilled by an asian option

Coming from here: https://quant.stackexchange.com/a/7616/43679 we have that for a European option, and due to the put-call parity, due to the non arbitrage rule, the volatility for a put and a call ...
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VaR using normal vol vS lognormal

We are using a vendor's software to calculate the Parametric VaR (using RiskMetrics approach) that take as input the volatility figure of the risk factors. The volatility used so far was the lognormal....
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Adjusting derived volatiles using skew

Once we obtain a prediction for the future volatility using (GARCH, HARQ, etc), do we have to adjust the implied volatility dependent on the strike price. How would we incorporate a skew versus a ...
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Black Standard Deviation in QuantLibXL

I was having a doubt about a fucntion in the QuantLib add-on for excel. What is the formula for the function: qlBlackFormulaImpliedStdDev(...) I know that there ...
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171 views

Negative Density in Local Stochastic Volatility (LSV) Model Calibration

I'm trying to calibrate Local stochastic volatility model using finite difference method, and I'm mainly following this referece: Tian (2015). I met a problem when calibrating leverage function - the ...
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Converting Historical Volatility to Implied Move

I am trying to calculate an implied one-day move value for an instrument given its historical volatility. While I am familiar with this formula for implied volatility to implied move: and intuition ...
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How to properly annualize portfolio volatility

I have a portfolio consisting of several assets and I'm using daily data to calculate various portfolio metrics, including historical returns and volatility. In order to compare portfolio performance ...
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Multiple Indices for CAPM model [closed]

I am new to quantitative finance so, please excuse me if the terms are not correct. I am trying to apply CAPM on a portfolio which has multiple indices (S&P 500, Russel 1000 and S&P Financials)...
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open-close intraday demeaned log return calculation

open-close return is basically what I feed into the realized kernel volatility and recently I noticed the realized kernel covariance/variance is generating negative value so I had to retrace my ...
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annualized vs annual returns

For the purposes of MPT, to compute return of an asset, one typically uses the daily log return of the assets and then anualizes it and the same goes for stddev ...

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