Volatility calibration

Documentation Index

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• In calm markets, one typical move is smaller in dollars, so the same dollar error is a larger fraction of a typical move and your score is a bit lower.
• In volatile markets, one typical move is larger in dollars, so the same dollar error is a smaller fraction of a typical move and your score is a bit higher.

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Formulas (for verification)

• Volatility (scale of typical 1-minute move): $\sigma = \mathrm{stddev}(\text{log returns})$ over a recent window (e.g. last 7 days).
• Sensitivity: $\lambda = \ln(2) / \sigma$.