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The Rise and Rise of Volatility Trading (sponsored advertorial)

27 Nov 2010

Edited by Annie Walsh, Chief Marketing Officer, Orc Software
Published by: Futures and Options World
Date: Sep 2008

“The jury’s in. The recent rise in volatility trading within the capital markets, prompting further trading development in this area, will result in even greater numbers of trading firms, worldwide, expanding their global use of volatility trading strategies. While volatility as an asset class has been the subject of debate in certain circles for at least the past five to ten years, it has very recently received more heightened media and industry attention and scrutiny.

“The subject has spawned much academic research. Back in May 2006, the Financial Times was writing about why volatility would become an asset class. More recently, Emmanuel Bourdeix, Credit Agricole Asset Management’s head of derivatives and convertibles said: “volatility should be considered as an equity sector in its own right alongside financials, industrials and mining stocks.”

Full article (PDF): Link

 
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Posted in Trading ideas

 

Forecasting Daily Volatility Using Range-based Data

23 Nov 2010

Article by: Yuanfang Wang, Matthew C. Roberts
Published by: The Ohio State University
Date: 1 Aug 2004

“Users of agricultural markets frequently need to establish accurate representations of expected future volatility. The fact that range-based volatility estimators are highly efficient has been acknowledged in the literature. However, it is not clear whether using range-based data leads to better risk management decisions. This paper compares the performance of GARCH models, range-based GARCH models, and log-range based ARMA models in terms of their forecasting abilities. The realized volatility will be used as the forecasting evaluation criteria. The conclusion helps establish an efficient forecasting framework for volatility models.”

Full article (PDF): Link

 
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Posted in Realized volatility

 

VIX Futures Sets Record, Volatility Trading on the Rise

19 Nov 2010

Article by: Daniel P. Collins
Published by: Futures Magazine
Date: 17 Nov 2010

“The Chicago Board Options Exchange’s (CBOE) volatility complex has been a successful franchise stemming from its benchmark CBOE volatility index (VIX). But since launching futures and options on the benchmark VIX, options volume has been more impressive than the futures contract which is offered through CBOE Futures Exchange (CFE). But in November VIX futures has set a series of volume records culminating on Tuesday Nov. 16 with record volume of 70,754, which surpassed a two-week old record by 50%”

Full article: Link

 
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Posted in Trading ideas

 

Range-Based Estimation of Stochastic Volatility Models or Exchange Rate Dynamics are More Interesting Than You Think

16 Nov 2010

Article by: Sassan Alizadeh, Michael W. Brandt, Francis X. Diebold
Published by: University of Pennsylvania, The Wharton School
Date: 20 Dec 1999

“We propose using the price range, a recently-neglected volatility proxy with a long history in finance, in the estimation of stochastic volatility models. We show both theoretically and empirically that the log range is approximately Gaussian, in sharp contrast to popular volatility proxies, such as log absolute or squared returns. Hence Gaussian quasi-maximum likelihood estimation based on the range is not only simple, but also highly efficient. We illustrate and enrich our theoretical results with a Monte Carlo study and a substantive empirical application to daily exchange rate volatility. Our empirical work produces sharp conclusions. In particular, the evidence points strongly to the inadequacy of one-factor volatility models, favoring instead two-factor models with one highly persistent factor and one quickly mean reverting factor.”

Full article (PDF): Link

 
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Posted in Investing ideas, Realized volatility

 
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