Annualized Actual Volatility (AAV)

Annualized Actual Volatility (AAV) is measured as annualised standard deviation of the continuously compounded daily returns of the asset. It is also often referred to as realized, historical, or actual, asset volatility. Here the daily closing prices of front month futures contract are being used for the measurement of asset volatility and the volatilities are expressed in annualized terms.

The annualised 5-, 10-, 20-, 40- and 60-day volatilities of important global commodities relevant to all business days are daily published, which would help in capturing weekly, fortnightly, monthly and bimonthly volatility trends in the underlying commodities. The availability of historical AAV series will sure act as a ready reckoner for volatility trends and will contribute to various research and other purposes.

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Methodology of AAV :

Annualized Actual Volatility (AAV) is measured as annualised standard deviation of the continuously compounded daily returns of the asset. It is also often referred to as realized, historical, or actual, asset volatility.

The daily closing prices of front month futures contract are being used for computing natural logarithmic daily returns. When the front month contract enters into first day of tender period/ pre-expiry margin period, then that day’s and previous day’s closing prices of the next available contract are considered for calculating daily returns.

Simply put, daily returns on a day is computed using closing prices of the same contract in order to avoid distortion during rollover of contracts. Consequently, we may obtain standard deviation on a series of continuously compounded daily returns of 1, 2 or more front month contracts.

The asset volatilities are expressed in annualized terms. The following formula is used to calculate the AAV.

Where, Pt and Pt-1 are the closing prices of the underlying futures on day ‘t’ and the business day prior to day ‘t’; D is the number of business days covered in the computation of respective historical volatility. The resultant volatility is expressed in percentage terms by multiplying with 100.

Disclaimer :

Every effort has been made in compiling the data/information to ensure the high quality and accuracy of the content of the MCX Annualized Actual Volatility Series. Under any circumstances, MCX shall not be liable to any user for intended/accidental errors. Users may carry out due diligence before using any data/information herein, MCX or its employees will not be responsible for any discrepancies/disputes arising out of such use.