update : ffvols ted ,
an update on the implementation for ffvols :
( 1 ) in comparing 6 days of historical var calculations
( with that of the implied ) for agg - gas , we have found that the historical var
calculations are consistently lower over this period , by roughly 17 mm . the
implied volatilities are much higher at this period , anticipating strong
winter prices .
( 2 ) at this time , the consensus is not to relase the
historical implementation into production , and the official line to traders
will be that the method is still in testing . the historical var is 19 . 2 mm
and the implied is 37 mm for effective date of 09 / 25 .
( 3 ) further testing is in progress on a hybrid methodology
( which i mentioned last week , whereby historical vols are scaled by the ratio
of prompt to historical - prompt volatilities ) , to atleast capture some
implied / forward effects . tanya ' s analysis on a fictitious portfolio
indicates higher var numbers , but poorer backtesting in comparison to the
historical approach . this approach serves as an intermediate , and seems
appropriate in periods such as the current one , wherein the historical
numbers might be considerably lower than those of the implied .
( 4 ) winston will start testing using these hybrid vols , and
if the results are deemed satisfactory , that will be the production
methodology .
of course , we will obtain all var numbers concurrently to serve as different
indicators and beacons of risk . the production number will hopefully be a
sensible compromise of the different methods .
regards
naveen
update : ffvols
ted ,
an update on the implementation for ffvols :
( 1 ) in comparing 6 days of historical var calculations
( with that of the implied ) for agg - gas , we have found that the historical var
calculations are consistently lower over this period , by roughly 17 mm . the
implied volatilities are much higher at this period , anticipating strong
winter prices .
( 2 ) at this time , the consensus is not to relase the
historical implementation into production , and the official line to traders
will be that the method is still in testing . the historical var is 19 . 2 mm
and the implied is 37 mm for effective date of 09 / 25 .
( 3 ) further testing is in progress on a hybrid methodology
( which i mentioned last week , whereby historical vols are scaled by the ratio
of prompt to historical - prompt volatilities ) , to atleast capture some
implied / forward effects . tanya ' s analysis on a fictitious portfolio
indicates higher var numbers , but poorer backtesting in comparison to the
historical approach . this approach serves as an intermediate , and seems
appropriate in periods such as the current one , wherein the historical
numbers might be considerably lower than those of the implied .
( 4 ) winston will start testing using these hybrid vols , and
if the results are deemed satisfactory , that will be the production
methodology .
of course , we will obtain all var numbers concurrently to serve as different
indicators and beacons of risk . the production number will hopefully be a
sensible compromise of the different methods .
regards
naveen