Description
Calculate implied variance minus realized variance on a common basis.
Financial market terms depend on quote conventions, contract multipliers, rate units, horizons and signed positions. A price gap, intrinsic value or linear sensitivity is a limited scenario term rather than an executable price or complete valuation. Variance, volatility, fractional rates and basis points are different quantities.
Calculate implied variance minus realized variance on a common basis.
When to use this tool
Use Volatility Risk Premium Variance Gap when checking the stated supplied market, valuation or exposure convention.
How to use the tool and how it works
- Enter impliedVariance, realizedVariance. Use the units and conventions below.
- Run the tool. Correct any format, range, or cross-field input error before interpreting the output.
- Read impliedMinusRealizedVariance. Use the output convention below.
Require nonnegative implied/realized variances. Return impliedVariance-realizedVariance.1
| Input field | Meaning and units | Accepted input |
|---|---|---|
| impliedVariance | Nonnegative variance on the same horizon/annualization basis as realizedVariance, not volatility. | Required. Finite number; minimum 0. |
| realizedVariance | Realized Variance | Required. Finite number; minimum 0. |
| Output field | Interpretation | Returned shape |
|---|---|---|
| impliedMinusRealizedVariance | Implied Minus Realized Variance | Required. Finite number. |
{
"input": {
"impliedVariance": 0.04,
"realizedVariance": 0.03
},
"output": {
"impliedMinusRealizedVariance": 0.010000000000000002
}
}Limitations and assumptions
- Both need matching return, horizon and annualization conventions; this variance gap is not a guaranteed premium, volatility difference or forecast.
- Inputs must satisfy both the field types and the cross-field conditions above. Invalid input causes an error; a successful false flag or documented placeholder is a different result.
- Numeric calculations use binary floating point unless exact decimal-integer arithmetic is explicitly stated. No hidden measurement tolerance or decimal rounding is added; nonfinite or out-of-contract results are rejected. Numeric signed-zero results are exported as zero.
Alternative or Complementary methods
Use verified contract/market data and a complete suitable valuation and risk model with qualified financial advice for actual investment or trading decisions.
References
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