How is realized variance calculated from log returns?

RV_T = sum_{i=1}^{N} r_i^2, where r_i = ln(S_i/S_{i-1}) are daily log returns. Annualized: sigma_realized = sqrt(252 * RV_T / N). The sum of squared returns is an unbiased estimator of integrated variance.

What is the variance risk premium?

VRP = implied variance - realized variance. Typically positive (implied > realized) by 3-5 vol points on an annualized basis for equity indices. It represents compensation to variance swap sellers for bearing variance risk.

Realized Variance from Daily Returns Calculator

Compute daily, weekly, and monthly realized variance from a series of log returns. Annualize using the appropriate multiplier (252 trading days). Compare to implied variance for variance risk premium.

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Frequently Asked Questions

How is realized variance calculated from log returns?

What is the variance risk premium?