Tuesday, October 18, 2011

Volatility Forecasts from NYU V-Lab

The NYU Volatility Lab now displays volatility/risk forecasts off TGARCH (Threshold GARCH), which has empirically outperformed basic GARCH models. This is call because these calculations require quite a bit of number crunching, data collection/cleaning, and code writing.

Reasons to pay attention to volatility estimates
  • Due to the mean reverting nature of volatility, forecasts are much more accurate than market direction
  • As volatility is negatively correlated with underlying equity indices, it could be used as a tool for trading decisions
  • Accurate volatility estimates could be realized as profit through option trading
  • Volatility futures (VIX, Variance) are directly tradeable now, though their valuations may be a bit tricky

0 Reflections: