Realized Local Volatility Surface
For quantitative trading risk management purposes, we present a novel idea: the realized local volatility surface. Concisely, it stands for the conditional expected volatility when sudden market behaviors of the underlying occur. One is able to explore risk management usages by following the orthotical Delta-Gamma dynamic hedging framework. The realized local volatility surface is, mathematically, a generalized Wiener measure from historical prices. It is reconstructed via employing high-frequency trading market data. A Stick-Breaking Gaussian Mixture Model is fitted via Hamiltonian Monte Carlo, producing a local volatility surface with 95% credible intervals. A practically validated Bayesian nonparametric estimation workflow. Empirical results on TSLA high-frequency data illustrate its ability to capture counterfactual volatility. We also discuss its application in improving volatility-based risk management.
Code (0)
등록된 구현이 없습니다.
Tasks
counterfactualManagementSimilar Papers 제목 키워드 기반
On the harmonic mean representation of the implied volatility
It is well know that, in the short maturity limit, the implied volatility approaches the integral harmonic mean of the local volatility with respect to log-strike, see [Berestycki et al., Asymptotics and calibration of l…
Short-maturity options on realized variance in local-stochastic volatility models
We derive the short-maturity asymptotics for prices of options on realized variance in local-stochastic volatility models. We consider separately the short-maturity asymptotics for out-of-the-money and in-the-money optio…
Data-Efficient Realized Volatility Forecasting with Vision Transformers
Recent work in financial machine learning has shown the virtue of complexity: the phenomenon by which deep learning methods capable of learning highly nonlinear relationships outperform simpler approaches in financial fo…
Time Series ForecastingAnalysis of Realized Volatility for Nikkei Stock Average on the Tokyo Stock Exchange
We calculate realized volatility of the Nikkei Stock Average (Nikkei225) Index on the Tokyo Stock Exchange and investigate the return dynamics. To avoid the bias on the realized volatility from the non-trading hours issu…
Local volatility under rough volatility
Several asymptotic results for the implied volatility generated by a rough volatility model have been obtained in recent years (notably in the small-maturity regime), providing a better understanding of the shapes of the…