Correct Historical Volatility Formula?

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  • 11/19/2019 at 3:43 PM #113130 quote
    Bard
    Participant
    Master

    Which is the correct formula (or approximation) for Daily, 30 Day Historical Volatility (HV)?:

    ivolatility uses the second formula: https://www.ivolatility.com/help/2.html#hv

    I found the first set of code on PRC.

    annualVol = 252
HVPeriod = 30 
periods = 7// 1 = intraday chart 7 = daily chart
 
Returns = log(close / close[1])
StdDev = std[HVPeriod](Returns)
HVol = (StdDev * sqrt(annualVol / periods)) * 100

    or:

    annualVol = 252
HVPeriod = 30
//periods = 7// 1 = intraday chart 7 = daily chart

Returns = log(close / close[1])
StdDev = std[HVPeriod](Returns)
HVol = StdDev * sqrt(annualVol) * 100

    Also shouldn’t it be:

    Returns = log(close [HVPeriod] / close[HVPeriod-1])

    because it’s the sample std deviation we’re calculating?

    Thanks, it’d be good to clear this up as I see it has been discussed in these forums.

    11/19/2019 at 4:01 PM #113131 quote
    Nicolas
    Keymaster
    Master

    I don’t think so, because in this case, in real time, you are calculation a standard deviation offset HVPeriod in the past.

    11/19/2019 at 4:43 PM #113133 quote
    Bard
    Participant
    Master

    “Offset?”

    Why do ivolatility state for HV calculations: https://www.ivolatility.com/help/2.html#hv

    Note: In denominator we use n-1 instead of n to receive unbiased estimate of general dispersion (a square of a standard deviation). This adjustment is essential if we estimate standard deviation on the basis of a small number of observations.

    Same with this quant site in Step #1: https://www.macroption.com/historical-volatility-calculation/

    So wouldn’t n-1 be more appropriate if we’re attempting to calculate small samples of 10, 30 and 30 day returns from 252 periods?

    Also why is there a divide by “periods” in the first formula – what is that doing, is it needed?

    Cheers!

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Correct Historical Volatility Formula?


ProBuilder: Indicators & Custom Tools

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Bard @brad Participant
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Forum: ProBuilder: Indicators & Custom Tools
Language: English
Started: 11/19/2019
Status: Active
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