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probability of a move in volatility
Dear AllAre there any books or advice here on working out the probability of a move in volatility from a low to high or low medium high regime in the next X days?ThanksTinkerz
probability of a move in volatility
Well, let's say by 'volatility' you really mean something like the VIX. And by 'probability', you are interested in the 'market's implied probability', aka the "risk-neutral probability" QIf so, then simply apply the Breeden-Litzenberger relation to the VIX option chains.
Last edited by Alan on November 28th, 2011, 11:00 pm, edited 1 time in total.
probability of a move in volatility
What I meant was,If you had daily data of historical volatility for a stock, what would be the probability of a move from a low volatility reading to a high volatility in x days from the data.
probability of a move in volatility
For single name equities, you *must* account for the earnings release days from the get-go. Take AAPL; after some kind of earnings adjustment; you could perhaps do a GARCH model fit. More forward looking is VXAPL. Your best predictors would likely use some combination of this info.I don't have any simple recipes for you, except to suggest it is quite difficult, non-trivial, and in the end you willonly have very weak predictions, as volatility is very noisy.
Last edited by Alan on December 3rd, 2011, 11:00 pm, edited 1 time in total.
probability of a move in volatility
Thanks, I do a GARCH model to get the volatility, I think I will have to do some pondering on it.Many thanks for your reply