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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18 views

How to compute reference share price and reference volatility in CreditGrade?

I'm trying to implement CreditGrade in python, from the msci Technical Notes (https://www.msci.com/documents/10199/dd31bcce-6fe3-47b7-9fb7-10c4c8f750ba) but I'm running into some comprehension trouble ...
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Why do we fit volatility surfaces implied from a option pricing model to the empirical data?

As far as I understand volatility surface. It is made of 2 components, the volatility skew/smile and the volatility term structure. Together they form something like Implied volatility is ...
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150 views

model high frequency bitcoin volatility

I am trying to model volatility of 1-minute returns of BTC, but it seems to me that the data do not behave traditionally. I tried fitting GARCH, eGARCH with ARMA (1,1) or (2,0), but I am not confident ...
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Realized Volatility Methods

Can someone explain to me which of these two methods is more accurate or commonly used to calculate Realized Volatility? I'm seeing both used, but I get very different results from them. 1) Standard ...
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Different definitions of volatility (simple question)

I have a basic question on volatility that I wanted some clarification on. In finance books (such as Hull), there's a few different ways volatility is defined. One of them is the standard deviation ...
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Weighting schemes - Volatility

One extension to this weighting scheme is to assume a long-run variance level in addition to weighted squared return observations. The most frequently used model is an autoregressive conditional ...
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Can I use root mean square(RMS) to calculate volatility of intraday feed data?

I've been using standard deviation as a direct/simple approach to calculate volatility of a given intraday feed data. My question is it logical/sensible that using root mean square (RMS), which is the ...
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Why do stocks with high sensitivities to innovations in volatility have low average returns?

Ang, Xing and Zhang (2006) state that "stocks with high sensitivities to innovations in aggregate volatility have low average returns". I am familiar that this question has been asked before in ...
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“high sensitivity to innovations in aggregate volatility”" [duplicate]

Ang, Xing and Zhang (2006) state that "stocks with high sensitivities to innovations in aggregate volatility have low average returns". I am familiar that this question has been asked before in ...
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How to apply the “Knapsack Problem” to minimise a portfolio's volatility?

Suppose I have a stock selection universe of 100 stocks. I have estimated the covariance matrix of this 100 stocks. I would like to create an equaly-weighted basket of 5 stocks which has the lowest ...
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299 views

How to calculate standard deviation cone around expected returns?

I would like to evaluate the returns of an investment manager who has given me their return and volatility expectations for their fund. I would like to calculate both 1 and 2 standard deviations from ...
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Delta Neutral / Gamma Neutral Positions

I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ...
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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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Stock Volatility with Uncertain Probability

Suppose that the probability that determines the state of the economy is unknown. That is, you do not know whether the booms or recessions are more likely. Calculate the expected return and the ...
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Trading spot volatility

I am reading a paper that very briefly talks about some volatility arbitrage strategies. It's so brief that I do not exactly understand how it works. It says one of the strategy is based on "short ...
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SABR ATM volatility

The ATM implied volatility is important in SABR when calibrating the model. Let's consider the ATM vol (for a european call option): $$\sigma = \frac{\alpha}{f^{1-\beta}} \left[ 1+ \left(\frac{(1-\...
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Estimating at-the-money volatility where at-the-money option is absent from the market

I am trying to estimate the intraday ATM volatility in a market where the the strike prices are relatively sparse thus the ATM option may not exist (let's say the closest strike is about 2% away from ...
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Convert volatility to yield

I have an elementary bond volatility math question - if 5y black vol is 38 and normal vol is 68, and the yield is 1.85%, how do I calculate 1 stdev in yield terms? As in how many basis points (or ...
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825 views

Volatility surface for Swaptions

I understand the volatility surface for swaption is built using implied vols of ATM swaptions. I had a question on the instruments that are used. Should the instruments used change depending on the ...
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how to model NGARCH using 5min frequency data?

NGARCH model using 5-min High-frequency data in R I wanted to analyze some 5 minute frequency data of stock market. My teacher asked me to use NGARCH to model, but I didn't know how to program.Here ...
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149 views

Dorfleitner's Standard Deviation

Can someone please advise how to compute the following (as my results go into thousands): E.g. I have used and the result (for T=12) = 580103.7261 Thanks
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636 views

What is the appropriate benchmark for a Long/Short VIX futures strategy?

Trying to figure out the benchmark for a L/S Vix futures stragegy, doesn't seem like only long or short Vix futures would be appropriate, any ideas? Thx
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What is the annualized realized volatility of simulated Brownian motion paths?

I saw this following question in an exam. Take a Brownian motion simulation with drift 5% and annualized volatility of 20% for a period of 1 year. Then the annualized realized volatility of the ...
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Constructing Volatility Smile from American Options

My question is about best practices for reconstructing volatility smiles for a fixed tenor from American option data. For simplicity/liquidity, I am currently considering options on SPY. I am ...
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looking for a simple realistic parametric volatility model

Which parametric volatility is realistic to test quickly and qualitatively a model? I do not wish to fit market quotes but would like to have a non-trivial volatility with skew or smile to do some MC ...
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Negative drift when calibrating GBM parameters

Setup for question: Consider a basket of $N$ stocks $\{S^1, S^2, \dots, S^N\}$. For fixed strike $K$, each stock in the basket, $S^i$, follows the SDE $$dS_t^i = \mu^i(t) S_t^i dt + \sigma^i(K, t) ...
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Why does the VIX index have *any* correlation to the market?

It appears that the log 'returns' of the VIX index have a (negative) correlation to the log 'returns' of e.g. the S&P 500 index. The r-squared is on the order of 0.7. I thought VIX was supposed to ...
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Arbitrage bounds on volatility of price of binary option?

What are the arbitrage bounds on the volatility of the price of a binary option? If the binary price moves too much (such that it violates the arbitrage bounds) what trades would you actually execute ...
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How do I export data from the volatility lab?

I am trying to export data from the volatility lab within the interactive brokers TWS platform. Specifically, I am interested in implied volatility and historical volatility for specific tickers. ...
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Volatility Skew fitting in R; Calculate option delta using various volatility dynamics

Given a fixed maturity option chain, i was wondering if there is any way to evaluation an option against this volatility surface and compute the various delta of the options wrt to volatility dynamics ...
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206 views

Are extended SABR models useful for options with non-negative underlying

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2731359 http://janroman.dhis.org/finance/SABR/ZABR%20Andreasen.pdf In the two articles listed above we see several ways to extend the original ...
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Anyone know if this daily report discontinue to publish? Goldman Sachs - “Global Index Volatility and Correlation Monitor”

I used to receive this daily report in my workplace from Goldman Sachs mailing list but the mailing list discontinued in May 2019 without any notice. The report is an pdf attachment which send from "...
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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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Price moneyness vs spread moneyness for credit index options (CDX HY)

Is spread moneyness equivalent to price moneyness for volatility surfaces of CDX HY? In other words, is the ISDA converter a linear transformation? I have market data that I need to convert to input ...
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Converting 30day annualized vol to 2day annualized vol

I would like to convert 30-day annualized volatility $\sigma_{30d}^a$ to 2-day annualized volatility $\sigma_{2d}^a$. Am i right to say: $$\sigma_{2d}^a = \sqrt{\frac{2}{30}} \cdot \sigma_{30d}^a$$ ...
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Is it possible to compute implied returns from volatility?

If we assume that, broadly speaking: Assets in liquid markets are fairly priced to its value Volatility is predictable (volatility clustering, GARCH, etc) Investors are rewarded and earn a return for ...
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Spread vol for interest rate spread options in normal environment

Suppose I am long spread option with underlying : rate A - rate B. The vega on the option would be positive. But if I want to compute the option vega with respect to individual rates, can I use the ...
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What is the best book to learn about local vs. stochastic volatility, modelling and pricing of Exotics?

I am starting to delve into the world of Exotics and I am trying to find a rigorous yet understandable book that covers both mathematically and qualitatively (especially mathematically) the following ...
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stock specific volatility

I was unsure about the precise definition of "stock specific volatility". Used in this question "A stock has beta of 2.0 and stock specific daily volatility of 0.02. Suppose that yesterday's closing ...
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Probability of stock closing over a certain price

A stock has beta of 2.0 and stock specific daily volatility of 0.02. Suppose that yesterday's closing price was 100 and today the market goes up by 1%. What's the probability of today's closing price ...
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Is $\sigma_{1} = \frac{\sigma_{\tau}}{\sqrt{\tau}}$ suitable for volatility scaling?

It seems to be the de-facto method; and I see how we get it from log-normal assumption. However volatility scaling seems to be way more sensitive to $\tau$ than mean scaling -- as in two ~ 2 times (...
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Trading Vol with options

One can trade vol swap to get exposure of the volatility of the underlying security in a 'clean' way. On the other hand, we know that vol swap, theoretically can be replicated by a dynamic position of ...
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Swaption pricing and strategies

I am looking for resources (books, papers, websites, etc.) that deal with Vanilla and Exotic swaptions from a more advanced and quantitative perspective. I am interested in both the pricing side (e.g. ...
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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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What is the cause of a “broken” volatility surface?

I am currently working on a project for which I need the implied volatility surfaces, to estimate the value of plain-vanilla European options with different strikes (cannot be observed directly in the ...
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625 views

Squared returns and volatility

Squared returns are considered pillars of GARCH/ARCH modelling and most used method for forecasting or studying volatility. Can you tell me how to calculate it from simple stock price. Is it better ...
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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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Forward Volatility vs Spot Volatility in Option Skew Models

My question is regarding Volatility Skew Models and their inputs. I have noticed that a vast majority of models take as an input the forward of the underlying (even in the case of stocks - where the ...
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1answer
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What is the unconditional variance for a GARCH model?

I want to use a Matlab script to calculate Heston Nandi GARCH prices. I found an appropriate script online and it asks for the "unconditional variance" as an input. How do I calculate the appropriate ...
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Black's Approximation - Discrete dividend for Put Options

I am currently trying to price and option chain for dividend paying stocks (american style exercise). I am able to calculate the Net Present Value (NPV) of dividends until maturity and then apply ...

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