SSRN Author: Torben G. AndersenTorben G. Andersen SSRN Content
http://www.ssrn.com/author=17696
http://www.ssrn.com/rss/en-usSat, 11 Oct 2014 02:30:56 GMTeditor@ssrn.com (Editor)Sat, 11 Oct 2014 02:30:56 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Exploring Return Dynamics via Corridor Implied VolatilityA number of fundamental questions regarding the equity-index return dynamics are difficult to address due to the latent character of spot volatility. We exploit tick-by-tick option quotes to compute a novel "Corridor Implied Volatility,' or CX, index which may serve as an observable proxy for short-term volatility. Exploiting this index, we obtain striking new empirical findings. In particular, equity-index volatility jumps are common and they are symmetrically distributed and co-jump with the underlying returns. Moreover, the return-volatility asymmetry, or leverage effect, is more pronounced than generally recognized and is in force for both diffusive and jump innovations in volatility. Finally, the CX index performs admirably during turbulent market conditions so it constitutes a useful real-time gauge of market stress.
http://www.ssrn.com/abstract=1787528
http://www.ssrn.com/1342394.htmlFri, 10 Oct 2014 15:33:42 GMTREVISION: Assessing Measures of Order Flow Toxicity and Early Warning Signals for Market TurbulenceFollowing the much publicized "flash crash" in the U.S. financial markets on May 6, 2010, much work has been done in terms of developing reliable warning signals for impending market stress. However, this has met with limited success, except for one measure. The VPIN, or Volume-synchronized Probability of INformed trading, metric is introduced by Easley, Lopez de Prado and O'Hara (ELO) as a real-time indicator of order flow toxicity. They find the measure useful in predicting return volatility and conclude it, indeed, may help signal impending market turmoil. The VPIN metric involves decomposing volume into active buys and sells. We use the best-bid-offer (BBO) files from the CME Group to construct highly accurate trade classification measures for the E-mini S&P 500 futures contract. Against this benchmark, the ELO Bulk Volume Classification (BVC) scheme is inferior to a standard tick rule based on individual transactions. Moreover, when VPIN is constructed from an accurate ...
http://www.ssrn.com/abstract=2292602
http://www.ssrn.com/1328496.htmlWed, 20 Aug 2014 13:09:39 GMTREVISION: Assessing Measures of Order Flow Toxicity and Early Warning Signals for Market TurbulenceFollowing the much publicized "flash crash" in the U.S. financial markets on May 6, 2010, much work has been done in terms of developing reliable warning signals for impending market stress. However, this has met with limited success, except for one measure. The VPIN, or Volume-synchronized Probability of INformed trading, metric is introduced by Easley, Lopez de Prado and O'Hara (ELO) as a real-time indicator of order flow toxicity. They find the measure useful in predicting return volatility and conclude it, indeed, may help signal impending market turmoil. The VPIN metric involves decomposing volume into active buys and sells. We use the best-bid-offer (BBO) files from the CME Group to construct highly accurate trade classification measures for the E-mini S&P 500 futures contract. Against this benchmark, the ELO Bulk Volume Classification (BVC) scheme is inferior to a standard tick rule based on individual transactions. Moreover, when VPIN is constructed from an accurate ...
http://www.ssrn.com/abstract=2292602
http://www.ssrn.com/1324223.htmlMon, 04 Aug 2014 07:14:22 GMTREVISION: The Fine Structure of Equity-Index Option DynamicsWe analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the evolution of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations over small time scales in the risk-neutral intensity of the negative jumps in the S&P 500 index, which is the dominant component of the short-maturity out-of-the-money put implied volatility dynamics, are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility, which is ...
http://www.ssrn.com/abstract=2350997
http://www.ssrn.com/1324221.htmlMon, 04 Aug 2014 07:10:22 GMTREVISION: Reflecting on the VPIN DisputeIn Andersen and Bondarenko (2014), using tick data for S&P 500 futures, we establish that the VPIN metric of Easley, Lopez de Prado, and O'Hara (ELO), by construction, will be correlated with trading volume and return volatility (innovations). Whether VPIN is more strongly correlated with volume or volatility depends on the exact implementation. Hence, it is crucial for the interpretation of VPIN as a harbinger of market turbulence or as a predictor of short-term volatility to control for current volume and volatility. Doing so, we find no evidence of incremental predictive power of VPIN for future volatility. Likewise, VPIN does not attain unusual extremes prior to the flash crash. Moreover, the properties of VPIN are strongly dependent on the underlying trade classification. In particular, using more standard classification techniques, VPIN behaves in the exact opposite manner of what is portrayed in ELO (2011a, 2012a). At a minimum, ELO should rationalize this systematic reversal ...
http://www.ssrn.com/abstract=2305905
http://www.ssrn.com/1283003.htmlTue, 18 Feb 2014 16:33:51 GMTREVISION: VPIN and the Flash CrashThe Volume-Synchronized Probability of Informed trading (VPIN) metric is introduced by Easley, Lopez de Prado, and O'Hara (2011a) as a real-time indicator of order flow toxicity. They find the measure useful in monitoring order flow imbalances and conclude it may help signal impending market turmoil, exemplified by historical high readings of the metric prior to the flash crash. More generally, they show that VPIN is significantly correlated with future short-term return volatility. In contrast, our empirical investigation of VPIN documents that it is a poor predictor of short run volatility, that it did not reach an all-time high prior, but rather after, the flash crash, and that its predictive content is due primarily to a mechanical relation with the underlying trading intensity. We also investigate a later incarnation of VPIN, stemming from Easley, Lopez de Prado, and O'Hara (2012a), and reach similar conclusions. In general, we stress that adoption of any specific metric for ...
http://www.ssrn.com/abstract=1881731
http://www.ssrn.com/1282986.htmlTue, 18 Feb 2014 16:32:08 GMTREVISION: Assessing Measures of Order Flow Toxicity via Perfect Trade ClassificationThe VPIN, or Volume-synchronized Probability of INformed trading, metric is introduced by Easley, Lopez de Prado and O'Hara (ELO) as a real-time indicator of order flow toxicity. They find the measure useful in predicting return volatility and conclude it may help signal impending market turmoil. The VPIN metric involves decomposing volume into active buys and sells. We use the best-bid-offer (BBO) files from the CME Group to construct (near) perfect trade classification measures for the E-mini S&P 500 futures contract. We investigate the accuracy of the ELO Bulk Volume Classification (BVC) scheme and find it inferior to a standard tick rule based on individual transactions. Moreover, when VPIN is constructed from accurate classification, it behaves in a diametrically opposite way to BVC-VPIN. We also find the latter to have forecast power for short-term volatility solely because it generates systematic classification errors that are correlated with trading volume and return ...
http://www.ssrn.com/abstract=2292602
http://www.ssrn.com/1262391.htmlMon, 02 Dec 2013 07:57:23 GMTREVISION: The Fine Structure of Equity-Index Option DynamicsWe analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.
http://www.ssrn.com/abstract=2350997
http://www.ssrn.com/1256498.htmlFri, 08 Nov 2013 11:34:37 GMT