Volatility (OHLC Garman-Klass)

Name Type Prerequisite Use Cases
Volatility O-H-L-C (OHLC Vol) Volatility OHLC Data Provides a more granular risk assessment than close-only models.

Definition

The Garman-Klass volatility estimator is an extension of the Parkinson estimator that includes opening and closing prices, not just High and Low. It is more efficient than Close-to-Close volatility as it utilizes information from the entire bar.

Mathematical Equation

\[ \sigma^2 = 0.5 \ln\left(\frac{High}{Low}\right)^2 - (2\ln 2 - 1) \ln\left(\frac{Close}{Open}\right)^2 \]

Special cases

  • Maximum possible value: Unbounded
  • Minimum possible value: 0
  • Behavior: Moves independently to represent price variance integrating OHLC data.

Visualization

Volatility OHLC

Trading Significance

  1. Efficiency: Provides a more accurate estimate of volatility by incorporating intraday range and opening gaps.

  2. Intraday Risk: Better captures the true trading range risk experienced during the session.