An Instantaneous Market Volatility Estimation

16 Pages Posted: 12 Aug 2019 Last revised: 14 Aug 2019

See all articles by Oleh Danyliv

Oleh Danyliv

Fidessa Group plc

Bruce Bland

Fidessa Group, London

Date Written: August 7, 2019

Abstract

Working on different aspects of algorithmic trading we empirically discovered a new market invariant. It links together the volatility of the instrument with its traded volume, the average spread and the volume in the order book. The invariant has been tested on different markets and different asset classes. In all cases we did not find significant violation of the invariant. The formula for the invariant was used for the volatility estimation, which we called the instantaneous volatility. Quantitative comparison showed that it reproduces realised volatility better than one-day-ahead GARCH (1,1) prediction. Because of the short-term prediction nature, the instantaneous volatility could be used by algo developers, volatility traders and other market professionals.

Keywords: volatility, order book, realised volatility, market invariant

JEL Classification: G12, G14, G17

Suggested Citation

Danyliv, Oleh and Bland, Bruce, An Instantaneous Market Volatility Estimation (August 7, 2019). Available at SSRN: https://ssrn.com/abstract=3434093 or http://dx.doi.org/10.2139/ssrn.3434093

Oleh Danyliv (Contact Author)

Fidessa Group plc ( email )

One Old Jewry
London, EC2R 8DN
United Kingdom

Bruce Bland

Fidessa Group, London ( email )

One Old Jewry
London, EC2R 8DN
United Kingdom

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