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Historical Volatility

Posted By phg 10 Years Ago
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phg
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Posted Friday January 26 2007
The RE Historical Volatility indicator has three parameters, two of which are 'period' and 'span'. Could you elucidate a bit on what 'period' and 'span' are please? Do you have a reference to an online definition of the underlying formula? Or, put differently, how does this differ from standard deviation over an interval?

Thanks.

-Pete

-Pete

See also Yahoo group about applying RE.

Posted Friday January 26 2007
There is a blurb about this in the developer guide and it reads

"The span is used to convert the reading to a different time scale. For example, to find the historical period over the last 10 days, consider using 250 as the span as this is approximately the number of bars per year. Over the last 10 weeks, a span of 52 is appropriate."  I don't know if this is accurate as I read it though, but I'll double check.

The calculation we use can be found here: http://www.cbot.com/cbot/pub/page/0,3181,774,00.html

Where the value they use the "annualize" volatility is the "span" (250) and the periods is the "natural log differences in daily prices for the calendar month".  However, the period parameter in RightEdge would allow you to specify the periods and not tie you to a month.  Of course this can be calculated over different bar frequencies.  As I'm sure you know, this is not to be confused with implied volatility, which can be calculated using our OptionCalculator class.

phg (1/26/2007)
The RE Historical Volatility indicator has three parameters, two of which are 'period' and 'span'. Could you elucidate a bit on what 'period' and 'span' are please? Do you have a reference to an online definition of the underlying formula? Or, put differently, how does this differ from standard deviation over an interval?

Thanks.

-Pete

phg
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Posted Saturday January 27 2007
Thanks Bill. I think I got it. Period is the sampling rate from a history (span). If the span is 250 of daily bars (trading year), then a period of 20 is approximately the monthly close; those 12 bars are used in a standard deviation computation. A period of 5 would be approximately weekly.

The CBOT example is a bit different. The most recent month of days is selected to calculate a daily variance which is then scaled to an annual figure using 250 trading days.

Thanks.

-Pete

-Pete

See also Yahoo group about applying RE.



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