Volatility

Volatility is the raw material of systematic options strategies: it is what options actually price, what their sellers are paid to bear, and what their buyers pay to own. This guide collects every Knowledge Hub entry on the subject - from the mechanics of implied versus realised volatility and the VIX methodology to the structural premia (the volatility risk premium), surfaces (skew and smile), and instruments (variance swaps, dispersion) that professionals trade.

Volatility is EC Assets' core competence; these entries reflect how our Volatility & Derivatives desk thinks about the subject in production, not just in textbooks.

All entries in this guide

• Dispersion Trading - Dispersion trading sells index volatility and buys single-name volatility on the same basket, betting on…
• Implied Volatility - Implied volatility is the volatility input that, when fed into an option-pricing model, reproduces the…
• IV Rank - IV Rank locates current implied volatility inside its high-low range over a lookback window, while IV…
• MOVE Index - The MOVE index is the bond market's VIX: a yield-curve-weighted measure of one-month implied volatility on…
• Realized Volatility - Realized volatility is the annualized standard deviation of an asset's returns over a lookback window: the…
• Realized vs Implied Volatility - Realized volatility measures how much an asset has actually moved, computed from past returns; implied…
• Rule of 16 - Divide annualised implied volatility by 16 to get the expected daily move: 32 vol means about 2 percent per…
• Square Root of Time Rule - Volatility scales with the square root of the horizon while returns scale linearly, so a daily standard…
• Standard Deviation - Standard deviation measures the dispersion of a set of returns around their mean.
• Term Structure of Volatility - The term structure of volatility is implied volatility plotted across maturities for a fixed moneyness.
• Variance Swap - A variance swap is a forward contract on realized variance: at maturity it pays the difference between the…
• VIX - The VIX measures the market's expected 30-day annualised volatility of the S&P 500, derived directly from…
• Vol Crush - A vol crush is the abrupt collapse in implied volatility that follows a scheduled event once its outcome is…
• Volatility - The dispersion of an asset's returns, conventionally the annualised standard deviation of its log returns.
• Volatility Risk Premium - The volatility risk premium is the gap between option-implied volatility and the realized volatility that…
• Volatility Skew and Smile - Skew means implied volatility differs by strike: equity index options price downside puts above at-the-money…
• Volatility Surface - Implied volatility mapped across every strike and maturity at once.
• VVIX - The volatility of the VIX itself. Calculated from VIX options using the same variance-swap methodology as…

More topic guides

• Options & Derivatives
• Macro & Multi-Asset
• Performance Measurement
• Risk Management
• Hedge Funds & Alternative Strategies
• Portfolio Construction
• Fund Structure
• Fund Operations
• Asset Allocation

Browse the full Knowledge Hub · Produced by EC Assets Research