Monday, August 20, 2012

Nikkei225 Realized Volatility at Different Hours

I was inspired by Jeff Augen to look up Nikkei 225 Index volatility between trading and off hours, and as expected a significant discrepancy is seem between them, with widely used close-to-close historical volatility at about the middle.

Why is this important?

It COULD be a way to exploit inefficiencies within option valuation, specifically vega.

Nikkei225 Realized Volatility since 1986
I used Nassim Taleb's method for volatility calculation using squared returns.

V.OC -  Annualized Historical Realized Volatility from open to close (Intraday)
V.G -  Annualized Historical Realized Volatility from the overnight Gap
V.C -  Annualized Historical Realized Volatility from close to close (conventional means)

0 Reflections: