Aug 21, 2010

Week in Volatility, Forecasts Review

This was a mixed week for volatility - the short term vol was all over the place, although mostly higher. Long-term vol was definitely on the upswing - the long-term futures being up about a third of a point. VSTOXX futures mostly rose, moving an average of 0.13 points. Overall volatility indexes around the world were down half of a point. 
Now, about a month ago I made a number of predictions about IWM based on its implied volatility; let's see how they worked out.

1 Prediction: volatility 2% per day, realized: 1.8% Implied volatility on indexes is usually higher than realized, but this month the difference is not huge. It is not unusual to see all implied risk measures to be higher than the realized. 

2. Prediction: daily range $2, realized: $1.48.

3. Prediction: monthly range $10.42, realized: $7.13. Monthly high prediction: $69.19, realized: $67.27. Monthly low prediction: $58.77, realized: $60.14. 

4. Maximum drawdown: $8.34, realized: $7.13.

Do these finding mean that the formulas are accurate enough to be used for trading decisions and quick assessment of risk? I think after applying proper implied/historical adjustment the formulas are very helpful, and that is how I use them in my own trading.  

No comments:

Post a Comment