High-Frequency Realized Volatility quantifies the actual price fluctuations of a financial asset, such as a cryptocurrency, observed over extremely short time intervals, typically measured in seconds or minutes, based on executed transaction prices. It offers an immediate and precise assessment of current market activity.
Mechanism
This metric is computed by aggregating squared high-frequency returns within a specified period, often derived directly from tick-by-tick market data. In contrast to implied volatility, which reflects market expectations, realized volatility empirically measures historical price movements that have already occurred, providing a concrete measure of market turbulence.
Methodology
Market participants utilize high-frequency realized volatility to calibrate algorithmic trading strategies, assess intraday risk, and adjust pricing models in real-time. Its direct calculation from market trades facilitates rapid adaptation to sudden shifts in liquidity or order flow, thereby informing dynamic risk management and optimal execution decisions.
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