The biggest news this week is that Deribit is moving ahead with launching futures on their DVOL Bitcoin volatility index. Like with every new product launch, I am cautiously optimistic, but given that Deribit has ~ 90% market share in cryptocurrency options volume, I think that the product has a

Deutsche Bank Currency Volatility Index was developed to provide an implied volatility benchmark for major currency markets. The index is designed to represent investors’ expectation of future volatility, and is calculated as the weighted arithmetic average of the 3-month level of implied

Russia’s economy was already in decline before the WW1 began, and its involvement in the conflict only exacerbated the situation. By 1917, russia was on the verge of collapse, with widespread poverty and a deep political divides. In March Tsar Nicholas II was forced to abdicate, and a provisional

In the previous article I wrote about using VIX / MOVE index ratio as an indicator for SPX returns. Here is the google sheet for your reference and experiments. The ratio itself is very stable - in fact 11 years ago I wrote that VIX = EXP(-1.84+1.06*LN(MOVE)) As you can see the relationship has held

MOVE index (Merrill Lynch Option Volatility Estimate) was developed by Merrill Lynch to measure implied volatility of US Treasury markets. ML became a part of Bank of America in 2008, and then indexes were sold to ICE in 2019, so now the index is called "ICE BofAML MOVE Index" The index is

Continuing on trying to fight disinformation about VIX. Everyone knows that VIX index the square root of the expected 30-day variance, and if we drop mathematical precision - 30 day expected volatility of S&P index. Scott Bauer, on CBO's website - "the VIX Index tells us the level of

Yesterday I found another piece of ignorance on Medium: Stop Watching The VIX, Just Make Your Own tl;dr : Just use ATM straddles. This is of course not correct. As I have written before on this blog that (skipping mathematical rigor) the value of ATM straddle is or about 80% of the expected

If you take all available VIX futures data and create a scatterplot of daily settlement prices as a function of time to expiration you will see a curious pattern: Yes, there are clear clusters in prices. But what do these clusters mean? The simple explanation is that the VIX term structure passes

This is not a post to correct some abstract mathematical technicality, or a semantic point. Rather I hope to shed some light on widespread mis-estimation of important risk metric that I often see on the internet. For example this double-decker of ignorance popped up on my twitter feed today. VIX as

I will be publishing some of my research notebooks, starting with downloader for VIX data, fitting Nelson-Siegel model for term structure ( static ) , and dynamic ( Kalman Filter ), and possibly some recent work I did on regime clusters in VIX and ML for VIX trading. Here is the link to the first

On September 23rd Columbia U will hold its annual ML in Finance workshop. Event link. Registration link. Topics include robust portfolio construction, NLP-clustering, novel computational technique for online PCA, deep learning for statistical arbitrage (equities) and futures (momentum, mr ), both

There is a very cool webinar coming up next week that I suggest everyone to register and attend link Daniel Bloch, also often listed as Daniel Alexandre Bloch has contributed a lot of research on using ML for options pricing. Also Mr Block published a very thorough free textbook options pricing that

Marco Avellaneda has contributed tremendously to financial mathematics, and to volatility trading in particular, has passed away earlier this year. Here I will review one of his last papers on trading VIX futures. I think most readers of this blog have modeled VIX futures understand both the risks

An innovative company has launched two ETFs to captures the night effect - the difference between stock market returns during the trading day, and when the market is closed. It is a well-documented effect that most of the market gains come overnight returns, and that day returns are relatively flat.

I was browsing LinkedIn the other day and saw a bar chart of annual average VIX levels, and noticed that they kind of go up and down as if it was a cycle. Intra-day effects of elevated volatility near open and close are well-known, as well as some day-of-week patterns. Seasonal effects of VIX are

This is a quick follow-up to my previous post with comments on Artur Sepps's video. From the start Mr Sepp sets up the practical problem familiar to anyone in the crypto options space. The leader is Deribit - an exchange that I wrote about extensively in this blog with ~ 89% market share. The

As I am sure all of you know Russia has began a full scale war against my home country Ukraine. Please make no mistake - Putin's goal in not to stop the expansion of NATO, not to install puppet government, and certainly not to bring peace. The goal is genocide of Ukrainian people. When Ukraine

Last week I wrote about BVOL - bitcoin volatility index launch on Deribit. However this is not the first crypto volatility index. In fact last year T3 Indexes - the folks behind SPIKES volatility index launched both Bitcoin and Etherium volatility indexes, and already executed trades tied to their

I just came across an excellent and highly relevant piece of research "A comparison of machine learning model validation schemes for non-stationary time series data" by Matthias Schnaubelt. Features like non-stationarity, concept drift, and structural breaks present serious modelling

Few years ago I published two post trying to give simple explanations and intuition behind complicated formulas used for calculating vol indexes. However few of you emailed that some charts are missing from these older posts, and for technical reasons since I could not restore them, I decided to

I think if you're reading this blog, you're probably already a knowledgeable options trader, and have heard of maximum pain theory - an idea that market moves in a path that hurts ( causes losses ) most amount of market participants. In options it is typically stated that simulating

Few weeks ago Dr Jonathan Kinlay from Quantitative Research and Trading blog published a series of excellent articles on volatility. I wanted to review and comment on the notes. Forecasting Volatility in the S&P500 Index Modeling Asset Volatility Long Memory and Regime Shifts in Asset Volatility

As I wrote before, Bitcoin volatility is quite different from volatility of other assets. I will continue with the same topic here. Bitcoin prices shot up to all-time highs this winter, and have sharply declined since. When an equity index declines, volatility typically moves up, but in the case of

If you're working with daily data (without access to intraday data) and need to calculate volatility, then using close-to-close squared returns is by far not the best way to go. Trades and quants know that it is a very noisy metric, and come up with few work-arounds. In this post I will do a

Reader Eli asked in the comments "I used to program in Matlab a lot in the past. Now I feel that Python is a better way to go. Any thoughts? Yes, quite a few - however I also hope to hear some ideas from other readers. Matlab is an excellent tool for analytics, and I have been using it for over

MATLAB Computational Finance Conference was a great event that I attended last year. There is a lot to learn for average Matlab user, and anyone working in finance. The agenda looks especially exciting this year. Ping me if you want to meet during the event.

Comment from reader Rich on yesterday's post prompted me to run a quick investigation - does adjusting bars helps to bring distribution of highs and lows closer to theory? The answer is definitely yes, but as everything else in life the reality is complicated. Here's what I found: Using

Just few days ago stock.nu published a post with charts showing that empirical distribution of daily lows follows a U-shaped pattern, i.e. daily low is not equally likely to happen at any time during the trading day, rather low is more likely to occur near the open or the close. Similar (symmetric)

The Data Science Institute at Columbia University and Bloomberg are holding a workshop on Machine Learning in Finance. The presentations look interesting and the price is right - just $30 if you have a valid student ID, or $100 if you don't. Some research articles are already available for

Notes From Academia: Exercise Boundary Violations in American-Style Options Here is the link to the research paper - Exercise Boundary Violations in American-Style Options: The Rule, not the Exception Abstract: An exercise boundary violation (EBV) occurs when the current bid price for an American

Different commodity including some volatility and bitcoin futures settle to an average value. For example VSTOXX settles to 1 minute sampled average value of the index in the last half hour of trading, Bitmex XBT/USD futures settle to 1 minute sampled average value of the last two hours of trading,