OmniTrader Professional Forum
OmniLanguage Discussion
Volatility Clustering code request
0 replies, 2353 viewings
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OmniTrader Professional Forum
OmniLanguage Discussion
Volatility Clustering code request
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Last Activity 10/5/2024 12:51 AM 0 replies, 2353 viewings |
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ap·pren·ticeGuru Veteran  Posts: 122 Joined: 10/22/2010 Location: Columbia, MD  User Profile |
Just wondering if anyone familiarize with volatility clustering, and if there possibly an OT code floating to best of knowledge. Thanks. ................ " From a practical standpoint, volatility clustering is important for everyone to understand: certainly options traders must (the options market already understands and (largely) prices for this effect, so you should too!), but active traders, portfolio managers, and risk managers also need to be aware of this. When a market has a volatile shock, what is the best bet? That, in some way, shape or form, more volatility is around the corner, and do not assume a quick return to quiet markets. An important caveat is that this kind of volatility is non-directional. A market can make a big move up, and then have a period of volatility that is up, down, or sideways–do not draw the facile assumption that a large price shock up will lead to a further move up–maybe, or maybe not. The key point is that it is unusual for a market to become volatile and then to immediately go dead again. Volatility shocks tend to persist. Big moves give rise to more big moves. Volatility begets more volatility. " ..... "Though not strictly correct, a good way to think of these models is that they model price paths that are a combination of a random walk with another component added in. This other component is a series of error components (also called residuals) that are themselves randomly generated, but with a process that sets the volatility of the residuals based on recent history. The assumption is that information comes to the market in a random fashion with unpredictable timing, and that these information shocks decay with time. The effect is not unlike throwing a large stone in a pond and watching the waves slowly decay in size." ref: http://adamhgrimes.com/blog/volatility-clustering/ |
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