Why do my Vol Cones look fugly? What am i doing wrong

Discussion in 'Options' started by RPEX, Jun 15, 2012.

  1. RPEX

    RPEX

    When i put a volatility cone together for an equity index, my output isn't as smooth or regular as the examples i've seen everywhere else [including the original Burghardt & Lane paper]. Here is my simple methodology:

    -Get the daily closing prices.
    -Calculate the series of log returns.
    -For the n-day HV, i take the STDEV(last n days)*SQRT(256)

    I do that for 30, 60, 120, 180 day horizons. Then for each of those series i get the 90th/75th/median/25th/10th percentiles and chart them.

    I have some ok looking results for some of the major FX pairs, but not when i do a stock index. Obviously i expect it to change with the length of the sample data, but even when i vary that i get ugly results. The most noticable difference is that the 90th and 75th percentile lines are wavy and don't conform to the cone shape irrespective of whether i take data from the last 30yrs or 2004-6.


    Am i going wrong somewhere?
     
  2. RPEX

    RPEX

    bump
     
  3. gmst

    gmst

    possible to post your code, referenced paper and the result that you are getting ?
     
  4. RPEX

    RPEX

    No code, just do the calculations in excel and chart. Paper attached.