Volatility Models are dependent upon how you are measuring volatility. Do you define that as close to close, from last night’s close to the morning open, or do you measure volatility as the percentage movement that day between the high and the low? Illustrated above in Figure #6 we have plotted these three main types of volatility so you can see there is a huge difference. Obviously, the definition of volatility being plotted and forecast can be correct in one manner and a non-event in another. It all depends upon your definition.

There is overnight volatility reflected in the percentage movement from the previous session closing to the current session opening. Then there is intraday volatility measured by the distance between the high and low of the trading session. Then there is closing volatility from one session to the next. We can see that these three perspectives alone provide completely different forecasts.