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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Vega for long long-term ATM call and short short-term ATM call
You are long a long-term ATM call and short a short-term ATM call. The
ratio is adjusted to make the total vega zero. If before expiry of the
short-term option, spot is again at the strike price. ...
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Regime-Switching Model for detecting market shifts
I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading.
Academia has long discussed this topic in-depth, such as using Regime Switching ...
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Fitting a forecasting S&P500 roll volatilities
I have a time series of S&P500 prices, for which I have calculated log-returns and roll-volatility. My goal is to forecast daily realized volatility and test a straddle strategy based on it (I ...
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Why historical volatility is calculated as N-days annualized?
Annualized historical volatility is always calculate with 10-, 20- days time window. I don't quite understand.
Compare with annualized historical return, annualized historical return is never ...
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Which volatilities should I use for Quanto Options?
Quanto options pricing formula, as described in this paper is a function of two volatilities: one from the underlying asset and another from the exchange rate.
How can I read the "right" volatilies ...
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Inherent volatility of selling longterm options and buying short term options
A two-month option has an implied vol of 60%, the corresponding 2-year option has an implied vol of 34%. You buy the short terms and sell the long terms. What is the inherent volatility of the total ...
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What does Volatility Smile tell? [closed]
Could you please share your opinions about Volatility Smile? What does it tell us when it gets more convex or when its level changes over time or any other change on it. Any paper/work/blog ...
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Break-even volatility for delta hedge portfolio
After simulating practical and theoretical PnL of a delta hedged portfolio on some data from the SPX500 under 0.15 management Vol I want to find the Vol which gives me an accumulated PnL of 0.
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Negative theta in Log-linear stochastic volatility model
I was asked to simulate the following geometric Brownian motion to get paths for the SPX stock price. the process follows a Log-Linear stochastic volatility.
$dS_t = \mu S_tdt+e^VS_tdW_1 $
where ...
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Finding Lead-Lag Relationship [duplicate]
Given two series of data, volatility and returns, is there a way (Excel) of finding which one is the leading factor and lagging factor?
Thank you for your help.
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Derivation of VIX Formula
I've read a lot of derivations about VIX formula. I can say it is -adjusted- fair strike of variance swap. But I can't see how it goes from variance swap rate to VIX formula. In particular I can't see ...
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Option value with different spot prices [closed]
I found this post online which is plotting different results for option value and greeks depending on spot price.
Why would someone want to do calculate the value of the option with different spot ...
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Threshold to consider the daily change of a bond price unusual?
In the context of compliance and market abuse monitoring, what relative change threshold would you choose to decide if transactions should be looked into?
For example, if a bond price had a relative ...
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How is volatility different from variance?
I always thought volatility was just variance ^ (1/2). Now I'm reading this book and it's saying that the two are different concepts. Excerpts include:
Partly due to its use in Black-Scholes, ...
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What are the different indicators to measure historical volatility for stocks on individual basis?
Google search shows there are three indicators to measure volatility: 1. Average True Range 2. Standard Deviation / Variance 3. Bollinger Bands.
What are the indicator(s) that you use to identify ...
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What is the formula for Intraday and overnight volatility?
I'm a noob trying to calculate IntraDay and Overnight Volatility.
For Intraday volatility we can get the annualization factor with the following:
Length (hours, Open to Close): 6.5
Time frames per ...
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Intuitive description of the Spillover Index by Diebold and Yilmaz
I am struggling to grasp the steps outlined in the 2009 paper by Diebold & Yilmaz, which introduces the framework for a spillover index.
The final expression for a spillover index for a two ...
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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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Is this the correct way to forecast stock price volatility using GARCH
I am attempting to make a forecast of a stock's volatility some time into the future (say 90 days). It seems that GARCH is a traditionally used model for this.
I have implemented this below using ...
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Proof of approximation formulas for implied volatilities
I am trying to calibrate a local volatility model to observed implied volatility smiles (not surfaces!, just a smile given for fixed maturity).
I ran into the following approximation, and thought I ...
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Estimating an GARCH(1,1) model? Long hand method
I am really trying to invest some time to estimate a GARCH(1,1) method, I know there is many statistical packages that will do this for me (Eviews, MATLAB, R), but I am trying to do this by hand, so ...
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In search of nice (approx) function forms of the volatility of cumulative simple returns
Let's consider a period $t\in[0,T]$, and let the simple return over year $t$ ($1\le t\le T$) be $r_t$. Assume $r_t$ are iid normal. The cumualative simple return over the whole period $[0,T]$ is
$$R_T=...
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Difference between volatility measures of a basket of assets
I am trying to understand intuitively the difference between two different measures of realized variance of a basket of assets.
The first measure I am aware of is when you take the realized variance ...
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Where can I find a list of market-moving news announcements for different asset classes?
Different asset classes have different important news announcements that move the markets intraday. For instance, oil volatility increases after the EIA Petroleum Status Report, but that announcement ...
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Good references on Heston Model?
I am looking for good bibliographic references on Heston Model and Stochastic volatility models in general.
Does anyone know any good introductory/intermediate references on this topic?
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Poor results forecasting stock price volatility using Python's GARCH model
As far as I understand, forecasting stock price volatility should be more achievable than forecasting absolute prices or returns. It seems as though GARCH models are the traditional and most widely ...
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Industry standard for interpolating FX volatilities
I'm looking to replace the FX vol interpolation scheme at my firm, and was wondering what the industry standard was.
We used to do vanna-volga, but it only takes 3 points (25dp, atm, 25dc), and so ...
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How to calculate number of round trips given volatility?
Suppose we know stock price volatility is normally distributed with mean = 0 and annual volatility say 20%. Let's assume markets never close and we can trade at 1 second intervals. Let's assume stock ...
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How to reasonably aggregate returns across both different assets and different time-horizons?
This might be a somewhat open question, so any suggestion of improvement is welcome.
Suppose at time $t=0$, we have $N$ different assets whose weights are $w_1,\cdots,w_n$ ($\sum w_i = 1$), and they ...
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Splitting theta from vol carry
What is the best way to splitting theta and vol carry on say a long calendar trade?
Basically trying to split the "good" carry component of a trade from the "bad" carry (theta) which could be earned ...
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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?
...
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Variance-Covariance VaR: how to get the volatility?
Because the variance-covariance VaR assumes that the returns are normally distributed, in theory it is easy to get VaR by simply finding the mean and the volatility (standard deviation) of the ...
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Comparing Implied Vol. to Historical Vol. using intraday data
I'm interested in estimating what my profit/loss would be for continuously gamma scalping a delta hedged option over the course of one day, using historical intra-day price data.
I found an equation ...
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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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Fractionally Integrated GARCH
I am currently working on a project to compare different GARCH(1,1) models on a financial data set. I use the rugarch package in R, and everthing seemed fine at first. However, now that I have started ...
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Why FX Vanilla Options are quoted in volatility
I've been curious why vanilla options are quoted (and traded) in terms of volatility. Considering that every financial institution has its own options pricing model, volatility as an input would cause ...
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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 ...
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implementing Volatility Managed Portfolios
How to I calculate the value of c in the vol-managed equation specified by Moreira & Muir Volatilty Managed Portfolios (2016) Equation 1?
Portfolio return in month t+1 =$$\frac{c}{RV_t^2}f_{t+1}$$...
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What is a regime switch?
I've come across the term regime switch in volatilities when reading about the modelling of interest rates but could not find a definition for a regime switch and what a regime is.
Can somebody give ...
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relationship between volatility and equity premium
I am working on the equity premium. Does anybody know one or two authors who address the relationship between volatility and equity premium? I.e. how does vola influence the equity premium?
In ...
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Variance Swap : dividends and rates
In a simplified world you can assume that the var swap is replicated by a continuous set of calls and puts and interest rates are equal to zero. So your PNL is only sensitive to the volatility.
But in ...
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What is, here, the relationship between "compound" and "arithmetic return" and "volatility"?
I'm trying to find the exact (ie, not an approximate) relation between the "Compound Return", "Arithmetic Return", and the "Annualised Volatility" as given the assumptions below, and from there the ...
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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 ...
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Options on realized volatility / variance
If I'd like to price options on variance/volatility in the Heston model. Is MC simulation and/or finite difference the only way to do it? Or is there an analytical expression for the probability ...
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Analytical Solution for Heston Model
What is the rationale of equation 7 in this paper? Could you please provide a step-by-step demonstration of this equality?
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Realized volatility forecast vs Implied volatility
I have forecasts of realized volatility, as well as implied volatility for individual traded options of the S&P500.
I want to simulate a simple trading strategy; that is, buy signal=1 if ...
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Daily idiosyncratic volatility?
I have a long daily times series of individual stocks and would like to obtain daily idiosyncratic volatility (keeping the same frequency). Apparently, the widely used methodology of Ang 2006 would ...
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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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Procedures to follow when VaR model fails backtest
I was wondering what the correct procedure is to follow when a VaR model fails a backtest (either conditional coverage and/or independence tests)?
Assuming I am restricted to using a historical VaR ...
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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 ...
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