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.
References in periodicals archive ?
Time series models, such as the generalized autoregressive conditional heteroscedasticity (GARCH) model, stochastic volatility modeling, the implied volatility of option contracts and direct measures, like the realized volatility, are the most common choices to estimate volatility in finance (Vai, Figueiredo Pinto, & Klotzle, 2014; Poon & Granger, 2003).
The confluence of (1) a secular shift to index funds and ETFs with the Labor Department's fiduciary rule as an accelerant, (2) record low implied and realized volatility, (3) almost a decade of central-bank mandated ultra-low interest rates, (4) anemic economic growth and inflation, and (5) equity valuation multiples in line with past market peaks, has created a world in which the market doesn't behave as it has in past cycles.
But while they do a good job of indicating why indexes like the VIX are so low, these technical explanations are less effective at explaining why the actual fluctuations in markets have been so subdued " realized volatility, to use the traders' term, as opposed to expected volatility.
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.
Next, we add to the model an additional factor based on realized volatility (VMC--volatile minus calm):
Louzis and###sector beta, realized volatility of###The index was compared to
Forecasting realized volatility over a period of time is very difficult, and different people feel different methods are appropriate.
Usual choices of regressors include trading volume, macroeconomic news announcements, overnight returns, after hours volatility, implied volatility from option prices and realized volatility.
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).
The 50 stocks with the lowest realized volatility form the Index.