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 Parkinson Volatility
Issued on September 10 2011 par Strategies-options.com
Closing prices are not enough to grasp intraday volatility. Parkinson number may provide some help.
Volatility is the most important parameter in derivatives pricing, and broadly in trading.
It's often linked to some risk notion. That way, closing prices don't seem to be enough with estimating volatility. I - Closing prices standard deviation seems to be a poor measure We have seen ( cf Volatility : Trading Formulae) that the way to price volatility using standard deviation could lead to some big errors. The same way, it isn't rare tosee a volatile market which closed at the same level as the previous day closing. Market seems to be flat if one just had closing prices. It doesn't provide a good way to grasp the real nervousness of the market. II - A need to take into account highs and lows Parkinson (1980) came out with a number that takes into account such an issue For n days Variance Park. = ( 1 / ( 4nln(2) ) ) . ∑ ( ln( Hi / Li ) )² Hence, σ Park. = √( variance Park. ) = √[( 1/( 4nln(2) ) ) . ∑ ( ln( Hi / Li ) )²] Where n is the number of observations ln natural logarithm ∑ sum function on n days Hi the highest value for the ith day Li the lowest value for the ith day As for every number, it's necessary to annualized it : Annualized σ Park. =(√252) . σ Park For 252 working days a year. CBOE's link on Parkinson Volatility Next : Garman-Klass Volatility Previous : Volatility : Trading Formulae OPTIONS 101 - INDEX OPTIONS 101 - CHAPTER I OPTIONS 101 - CHAPTER II OPTIONS 101 - CHAPTER III OPTIONS 101 - CHAPTER IV OPTIONS 101 - CHAPTER V OPTIONS 101 - CHAPTER VI Strategies-options.com |
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