SD-Market Data for equities includes ATM spot and ATM forwards volatility, smile volatility (typically volatility for strikes 90% & 110% of the spot in the short term and 80% & 120% in the medium), forward prices, dividend amount and dividend rate, security lending rate, deposit rate, the stock price and the future prices for indices. Corporate actions and indices constituents are also part of the input.

SD constantly amalgamates the price information from the exchanges with price information from the OTC market to obtain a coherent volatility smile, forward curve and meaningful implied dividend stream. The amalgamation is done through algorithms that have been in use for several years and thoroughly tested and approved by many users. In illiquid stocks and illiquid exchanges, the company provides estimations when data is missing by the use of algorithms that completes big data wholes through correlations and comparison to similar stocks/indices via business logics. Using colour codes, users always know if the volatility provided by SD is estimated or obtained directly from the market.

SD invests significant analytic work in the construction of the equity volatility surfaces and forward curves:

• Market data is obtained from: direct and indirect feeds from exchanges worldwide; dividend information; index constituent data; and contributed market rates from the OTC market
  
  
• The data is combined, validated, cleansed and filtered to create a single reliable term structure
  
  
• The filtered data is then applied against the respective volatility surface and forward curve, forming a constraint

 

The analytic process requires: live quoted and settlement prices of exchange traded index and single stock options; underlying asset data; stock index constituent data, historical dividend flows; and dividend forecasts.

All asset prices are also tracked and used to statistically estimate the short term volatility, volatility of volatility and joint correlation of the asset price return with changes in volatility. These form the basis of a historical calculation of volatility, skew and smile for that asset. In addition, the rolling correlation of that asset with its sector cohorts and geographic market index is also calculated. The historical volatility parameters together with the required correlations allow the construction of a dynamical tracking model for volatility parameters. This tracking model generates expected volatility surfaces for an asset given changes in that asset’s implied volatility surface or historical volatility parameters, or that of its cohorts or major market index. This allows for the generation and live updating of volatility surfaces for thinly traded or illiquid instruments.

Typical number of sources for SD-Market Data for equities per instrument:

Liquid stocks in indices:

• Spot:  8-12 sources
• Futures: 6- 11 sources
• Forwards: 7-12 sources
• ATMS/ATMF volatility up to 3 years: 6-12 sources
• ATMS/ATMF volatility 3-10 years: 5-8 sources
• Smile input up to 3 years: 5-10 sources
• Smile input 3-10 years: 5-7 sources

 

Illiquid stocks:

• Spot:  7-10 sources
• Forwards: 4-7 sources
• ATMS/ATMF volatility up to 3 years: 5-8 sources
• ATMS/ATMF volatility 3-10 years: 3-6 sources
• Smile input up to 3 years: 5-8 sources
• Smile input 3-10 years: 3-6 sources