Quantitative Finance Stack Exchange
Quantitative Finance Stack Exchange

Questions tagged [volatility]

A measure of the variation in price over time. Also a measure of the risk of a financial instrument.

Historic volatility is derived from time series of past market prices. An implied volatility is derived from the market price of a market traded derivative (in particular an option).

It is common for discussions to talk about the volatility of a security's price, even while it is the returns' volatility that is being measured. It is used to quantify the risk of the financial instrument over the specified time period. Volatility is normally expressed in annualized terms, and it may either be an absolute number ($5) or a fraction of the mean (5%).

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What are the advantages/disadvantages of these approaches to deal with volatility surface?

I would like to know if someone could provide a summarized view of the advantages and disadvantages of the approaches on the volatility surface issues, such as: Local vol Stochastic Vol (Heston/SVI) Parametrization (Carr and Wu approach)
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Why is volatility mean-reverting?

We all know it does mean revert. The question is why. What's making volatility mean-revert? Is it some sort of cyclical behaviour of option traders? The way it's calculated? Why?
user40
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What are the major characteristics of natural gas volatility and options?

Seasonality is a big deal in the natural gas markets. My understanding is that they are broadly divided into summer and winter, with seasonality in both price and the volatility. What does this translate into in terms of skews or volatility…
Brian B
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Relationship between Large Cap and Small Cap Volatility

Relative value of large cap volatility. We all track the VIX as a measure of volatility, but we often forget that the VIX is volatility indicator for the large cap index within the SP500. We can construct volatility measures of volatility for…
jessica
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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 could plug in my implied volatility formula, and…
Scehewekan
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Black-Equivalent Volatility

Can Someone Explain to me what this term means, and how it's used?
dragunov
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Tradable Volatility

VIX (spot) has very nice features, including mean reversion. We all know that we can't trade VIX (spot). The closest we can get is using front-month future contracts. The problem I have with that is that, in practice, VIX futures are not great at…
user40
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What is the equation for Garman-Klass volatility?

I want to calculate realized/historical volatility for the underlying products of various options using the Garman-Klass estimator, but I can't see to find an equation, although I know it involves OHLC data. In the comments there is a link to the…
Stu
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How to hedge against lack of volatility

Say you have a trading system that works best when markets are most volatile. What would be the best way to hedge against lack of volatility ? For example, 2008, 2009 was highly volatile and it has been trending down since. What's the best way to…
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Estimating the historical drift and volatility

I want to forecast prices $S(t)$ of some asset based on historical daily values. I want to use the geometric Brownian motion given by an SDE: $$dS=\mu S t + \sigma S dB,$$ where $B$ is a Brownian motion, for modeling. The historical prices…
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Dupire's tradable realized volatility estimators

It seems to have vanished off the web but a few years back Dupire published two tradable realized volatility estimators in 2015, I even asked a question around it here. What makes a realized vol estimate "tradeable"? However, the only presentation I…
pyCthon
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Question on Local Volatility

In Gatheral's book The Volatility Surface (Wiley, 2006), a local volatility model is defined as... $$ dS_t =S_t \mu_tdt + S_t \sigma(S_t, t)dZ $$ The famous Dupire Equation is given by... $$ \sigma^2(K, T, S) = \frac{\partial C/\partial…
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Construction of "vol of vol"

How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
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What's volatility timing?

I'm new and i'm starting studying finance. My english level is not so good. Could you explain me please, what is volatility timing? Thanks to all
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Why are there so many different ways of calculating historical volatility

There appears to be several ways of calculating volatility: Price volatility (of which there are several variants): close to close high low range average of open, high, low and close Log returns volatility My question(s) are: a). Why are there…
Homunculus Reticulli
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