|WikiProject Finance||(Rated Start-class, Mid-importance)|
This does not sound right: future implied volatility which refers to the implied volatility observed from future prices of the financial instrument - that means I would need the future prices of the instrument to calculate the vola? :-) Where does all this terminology come from? Neither looks right nor backed by literature like the Hull. Thobitz (talk) 19:32, 22 March 2011 (UTC)
Is it really the standard deviation of the logarithmic returns, as the article says? Many online sources say it's the standard deviation of the (percentage) returns. Ben Finn (talk) 13:19, 18 December 2008 (UTC)
Yes - this is correct, at least from my context, which is options valuation. A most recent cite is "Option Pricing Models and Volatility Using Excel - VBA", by Rouah and Vainberg, Pg. 276. My firm generally uses this definition for finance research and consulting projects such as the valuation of employee stock options. The reason that the logarithmic definition is used is twofold:
1) The lower bound of a regular return is -100%. Using the logarithm of the return has no such limitation. This leads to...
2) Logarithmic returns are invertible. If a stock were to lose 5%, then gain 5%, (or vice-versa) it would not return to its initial price. But if the the returns are logarithmic, the math works out: for example: Given two returns r1 and r2, where log(r1)=5% and log(r2)=-5%, then the stock price after two days would be S2 = S * (1-r1) * (1-r2) = S * (e^0.05) * (e^-0.05) = S. This simplifies the models and calculations.
standard deviation vs. semi deviation
Crude Volatility Estimation section
"Of course, the average magnitude of the observations is merely an approximation of the standard deviation of the market index. Assuming that the market index daily changes are normally distributed with mean zero and standard deviation σ, the expected value of the magnitude of the observations is √(2/π)σ = 0.798σ. The net effect is that this crude approach overestimates the true volatility by about 25%."
I am no financier, but this last sentence does not seem correct. If the expectation of the observed deviations equals 0.798σ, then using this crude estimate rather than the true σ (= (1/.798)* average) would underestimate the true volatility, not overestimate it as stated.
I think the article is wrong
POV in criticism section
The criticism section seems awfully personal in the way it deals with critiquing volatility. Also, the papers cited are old. Updated references would be a good addition. JayBee51 (talk) 21:33, 30 August 2011 (UTC)
- The criticism section does indeed seem a bit personal. That said, it would be unfair to ignore the critics. One point I disagree on: The age of the papers has no bearing on their relevance. In fact, old papers that are still cited are likely to be better than recent papers. I know this is different from the Wikipedia idea that newer is better; but, in academia, citations matter more than age. Cumulant (talk) 21:52, 31 May 2012 (UTC)
Volatility is a Metric not a measure
I think the opening section is not correct, and leads to confusion further into the article. "Volatility" is a concept for randomness - but upside and downside. This fits the definition of a "Risk Metric". It can be calculated in a number of different ways - (option implied, exponentially weighted moving average etc). All these are risk measures.
Making this distinction early on in the piece would make the definitions of the various risk measures (calculation algorithms) more meaningful. — Preceding unsigned comment added by 126.96.36.199 (talk) 02:34, 20 August 2013 (UTC)