29 August 2018
Fiapay Volatility Index
Looking for a good illustration of risk

These last days of summer are as good a time as ever to reflect on the volatility observed during the usually quiet trading season. We've put together a basket of the 7 most heavily traded (or, as is the case with Bitcoin, most emotionally charged) assets, such as Gold, US Dollar, and other major currencies, and compared them to each other as well as to XDR. As a crude but useful measure of risk for each of the seven assets, we've decided to take an arithmetic average of standard deviations for each of its six asset pairs. For simplicity, we will call these averages a Fiapay Volatility Index.

As a technical aside, to calculate volatility, we use daily log-normal returns observed over a preceding 90-day period, measure their standard deviation, and then annualize it. To anyone familiar with FX products, our figures below will seem unusually high, and rightly so. Since we are averaging volatilities across assets with very different risk profiles (think Bitcoin vs. Japanese Yen), we inevitably inflate the average. Whereas for major currency pairs, annualized volatility is usually around- or below 10%, for Bitcoin, anything above 50% is typical (if not inherent.) Considering our audience, however, it is still useful to add at least one major cryptocurrency in the mix.

Our search for a convenient and straightforward measure of cross-currency volatility will continue. The traditional Dollar-based indicators of risk are not particularly useful in an international setting, where a direct comparison of observed standard deviations between two unrelated currency pairs may not yield a useful result (in the absence of any correlation data, at least.) Our volatility index is helpful in a situation where the risk-taker is exposed to an unpredictable mix of various currencies and assets and where it could be difficult to ascertain what the 'base' currency is. We expect further changes to this index as we go along, but for now here are the latest figures:

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16 August 2018
#fiapay #stellar #testnet #token #xdr
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