Garman-Klass Volatility Calculation – Volatility Analysis in Python

Follow us on LinkedIn

In the previous post, we introduced the Parkinson volatility estimator that takes into account the high and low prices of a stock. In this follow-up post, we present the Garman-Klass volatility estimator that uses not only the high and low but also the opening and closing prices.

Garman-Klass (GK) volatility estimator consists of using the returns of the open, high, low, and closing prices in its calculation. It is calculated as follow,

Volatility Analysis in Python Garman-Klass

where hi denotes the daily high price, li is the daily low price, ci is the daily closing price and oi is the daily opening price.

We implemented the above equation in Python. We downloaded SPY data from Yahoo finance and calculated GK historical volatility using the Python program. The picture below shows the GK historical volatility of SPY from March 2015 to March 2020.

Garman-Klass Volatility in Python

The GK volatility estimator has the following characteristics [1]

Advantages

  • It is up to eight times more efficient than the close-to-close estimator
  • It makes the best use of the commonly available price information

Disadvantages

  • It is even more biased than the Parkinson estimator

Also check out Historical Volatility Online Calculator.

References

[1] E. Sinclair, Volatility Trading, John Wiley & Sons, 2008

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSCanadians showing more support for striking workers amid inflation, corporate profits
Canadians showing more support for striking workers amid inflation, corporate profits

It was Samantha Henry’s first time on strike, and one that made headlines across the country. “Some people thought the strike would only last a week, a couple of days. And we went into almost five weeks,” said Henry, one of some 3,700 Metro employees…

Stay up-to-date with the latest news - click here
LATEST NEWSInflation likely gained pace in August, economists expect, reversing progress
Inflation likely gained pace in August, economists expect, reversing progress

OTTAWA — Economists are forecasting inflation reaccelerated to around four per cent last month, reversing previous progress made as gasoline prices push inflation higher. Statistics Canada’s August consumer price index report set to be released Tuesday is expected to show the annual inflation rate rose…

Stay up-to-date with the latest news - click here
LATEST NEWSUS national security adviser meets with Chinese foreign minister
US national security adviser meets with Chinese foreign minister
Stay up-to-date with the latest news - click here
LATEST NEWSShiba Inu (SHIB) Profitability Is Finally Back at Double-Digit Level
Shiba Inu (SHIB) Profitability Is Finally Back at Double-Digit Level
Stay up-to-date with the latest news - click here
LATEST NEWSA Fed decision, FedEx earnings and the UAW strike: What to know this week
A Fed decision, FedEx earnings and the UAW strike: What to know this week
Stay up-to-date with the latest news - click here

Leave a Reply