A question on volatility

Hi Megh,

As a practitioner I would use something like

x1 <- get.hist.quote(instrument = "^gspc", start = "1990-01-01")
x2 <- get.hist.quote(instrument = "^dji", start = "1990-01-01")  ## 
both need to be synchronized in time

r1 <- log(x1[, 2])-log(x1[, 3]) ## range as proxy for vola
r2 <- log(x2[, 2])-log(x2[, 3]) ## not ()^2 to avoid possibly 
non-finite fourth moment

r <- merge(r1, r2)

plot(r)

rcor <- rollapply(r, width = 250, FUN = function(z) cor(z[, 1], z[, 
2], method = "pearson"),
                 by.column = FALSE, align = "left") ## method != 
"pearson" for rank correlations

plot(rcor)

as a starting point. As a next step I would use a better proxy for 
vola from the zoo of realized vola based estimators.

Best regards
Adrian

Dear all, I was trying to understand the correlation among 
the?volatilities?in different financial market, however am in dilemma 
what could be the rightful and acceptable-to-everyone approach. I 
thought to estimate the volatilities of?individual?markets using some 
GARCH modeling, then just calculate the correlation coefficient on 
the estimated time series of estimated daily volatilities.?

Is it correct approach to understand the correlation? Can somebody 
point me any online paper or any idea on the same?

Thanks for your time.