Rolling Volatility Of Volatility

Quick Reference

Property	Value
Dimension	stability
Category	volatility
Version	v1.0
Output Column	vol_of_vol_stability

Rolling volatility of volatility: rolling_std(vol_of_vol) — measures stability of volatility estimates

Formula

rolling_std(vol_of_vol, window)

CDM Inputs

Column	CDM Table	Description
vol_of_vol	cdm_*	CDM source table

Parameters

Parameter	Type	Default	Description
window	integer	300000	Window for stability estimation

Output

Column: vol_of_vol_stability

Rolling standard deviation of vol-of-vol (higher = less stable estimates)

Market Intuition & Trading Rationale

Volatility of volatility measures the stability of volatility estimates: rolling_std(vol_of_vol). It's a second-order metric — while realized_volatility measures how much prices move, vol_of_vol measures how much volatility itself moves. High vol-of-vol means volatility is unstable — the market is switching between calm and turbulent regimes unpredictably. Low vol-of-vol means volatility is stable — the current regime is persistent and forecastable.

This is a meta-stability diagnostic. When vol-of-vol is low, volatility-based position sizing works well — you can reliably scale positions based on current volatility. When vol-of-vol spikes, volatility itself becomes unpredictable — volatility-based position sizing breaks down because today's vol estimate may be wildly wrong tomorrow.

Usage Cases

• Position sizing reliability: Low vol_of_vol → volatility-targeted position sizing is reliable. High vol_of_vol → switch to simpler position sizing (equal weight, or based on longer-term average vol) because short-term vol estimates are unstable.
• Regime transition detection: vol_of_vol often spikes before volatility itself changes. Rising vol_of_vol with stable vol is an early warning that the current vol regime is about to break — prepare for a volatility event.
• Options trading: vol_of_vol is the volatility of the underlying's volatility — analogous to "vol of vol" in options pricing. High vol_of_vol makes options hedging more difficult because the hedge ratio changes unpredictably.

YAML Definition

name: rolling_volatility_of_volatility
description: 'Rolling volatility of volatility: rolling_std(vol_of_vol) — measures
  stability of volatility estimates'
category: volatility
dimension: stability
version: v0.9.0 (Beta)
required_inputs:
  - vol_of_vol
output_column: vol_of_vol_stability
output_description: Rolling standard deviation of vol-of-vol (higher = less stable
  estimates)
tags:
  - stability
  - volatility
  - meta
parameters:
  window:
    type: integer
    description: Window for stability estimation
    required: false
    default: 300000
formula: rolling_std(vol_of_vol, window)