Conditional Volatility (CV)

Category: volatility

Calculates the conditional volatility based on the GARCH(1,1) model, providing an annualized estimate of market risk and volatility clustering.

Formula

r_t = \ln(C_t / C_{t-1}) \\
\sigma_t^2 = \omega + \alpha \cdot r_{t-1}^2 + \beta \cdot \sigma_{t-1}^2 \\
\text{where } \omega = (1 - \alpha - \beta) \cdot \sigma_{long\_run}^2 \\
\text{Result} = \sqrt{252 \cdot \sigma_t^2} \cdot 100

Inputs

• Length (default: 20)
• Alpha (default: 0.2)
• Beta (default: 0.7)

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