Realized volatility

Realized volatility

Sometimes referred to as the historical volatility, this term usually used in the context of derivatives. While the implied volatility refers to the market's assessment of future volatility, the realized volatility measures what actually happened in the past. The measurement of the volatility depends on the particular situation. For example, one could calculate the realized volatility for the equity market in March of 2003 by taking the standard deviation of the daily returns within that month. One could look at the realized volatility between 10:00AM and 11:00AM on June 23, 2003 by calculating the standard deviation of one minute returns.

Historical Volatility

A measure of a security's stability over a given period of time. While there are various ways to calculate it, the most common way is to compute the average deviation from the average price over the period of time one wishes to measure. The historical volatility is often compared to the implied volatility to determine if a security is overvalued or undervalued. Generally, securities with a higher historical volatility carry more risk. It is also called realized volatility or the standard deviation. See also: Volatility.
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Realized volatility has also been remarkably dormant.
Apart from these studies regarding the comparison of prediction performance of realized volatility estimators, one can find other studies using intraday trading data.
The definition of high or low volatility is based on 63 days realized volatility calculated separately for each equity index.
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"These effectively will rebalance the underlying customers' funds to target a certain amount of realized volatility," said Laurence "LT" Grant, head of global equity and VA structuring with Aegon Asset Management's global derivatives and hedging team.
They test the relationship using multiple regression framework where realized volatility (RV) is regressed against non market maker demand for volatility along with a set of control variables (lags of RV, lags of implied volatility, dummy for earning announcement date, stock volume and options volume).
Usual choices of regressors include trading volume, macroeconomic news announcements, overnight returns, after hours volatility, implied volatility from option prices and realized volatility.
Table 1: Descriptive Statistics for Realized Volatility of Crude Oil, Heating Oil, and Gasoline over the Sample Period from September 1, 1987 through February 12, 2014 Mean St.dev.
It is also important to note that we use daily returns as opposed to realized volatility series constructed from intra-daily high-frequency data, a method that has recently become popular.
The 50 stocks with the lowest realized volatility form the Index.
The 80 stocks with the lowest realized volatility over the past year are selected from the S&P Eurozone BMI Index to form the S&P Eurozone Low Volatility USD Hedged Index.