the significance of volatility index
September 22nd, 2015 at 2:08:54 PM
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Hi all,
I read an article introducing some math of the slot machines. There is a math concept called volatility index. Based on the definition, volatility index is calculated as standard deviation times a weight number. The weight number depends on the confidence interval. It is said that if we consider 90% confidence interval, the weight is 1.64 and the volatility index is VI = 1.64*sigma, where sigma is the standard deviation. I have two questions.
Firstly, what is the standard deviation (STD) for in this content? I mean does the STD for all return-to-player? I wrote a code to simulate the game play for a self-designed slot game of 1000000 cycle. I assume the bet (B) for each game is 1 unit and the winning for the game denoted as W (could be zero), so the payback for each game is P(i) = W(i)/B(i), so if I run the simulation for 1000000 times, I can calculate the STD = sqrt( sum( [P(i)-average(P)]^2 )/(N-1) ), so VI = 1.64*STD?
In above calculation, I assume the STD is that for return-to-player. But in other article, they mention that here STD is for each payout but not the return-to-player, so which one is correct? why?
Secondly, what's the significance of VI? I know that game of high volatility index indicates a game with wide fluctuation of payout upon each game. But how do we tell is the VI is high or low? Is VI always maximized and normalized to 1? Otherwise, how can we compare the VI for different games? In an advertise I read on the slot machine, it is said that VI is 11.3, so what can I tell from that number? Is the range of VI is from 0 to 100 so 11.3 means pretty low volatility index?
I read an article introducing some math of the slot machines. There is a math concept called volatility index. Based on the definition, volatility index is calculated as standard deviation times a weight number. The weight number depends on the confidence interval. It is said that if we consider 90% confidence interval, the weight is 1.64 and the volatility index is VI = 1.64*sigma, where sigma is the standard deviation. I have two questions.
Firstly, what is the standard deviation (STD) for in this content? I mean does the STD for all return-to-player? I wrote a code to simulate the game play for a self-designed slot game of 1000000 cycle. I assume the bet (B) for each game is 1 unit and the winning for the game denoted as W (could be zero), so the payback for each game is P(i) = W(i)/B(i), so if I run the simulation for 1000000 times, I can calculate the STD = sqrt( sum( [P(i)-average(P)]^2 )/(N-1) ), so VI = 1.64*STD?
In above calculation, I assume the STD is that for return-to-player. But in other article, they mention that here STD is for each payout but not the return-to-player, so which one is correct? why?
Secondly, what's the significance of VI? I know that game of high volatility index indicates a game with wide fluctuation of payout upon each game. But how do we tell is the VI is high or low? Is VI always maximized and normalized to 1? Otherwise, how can we compare the VI for different games? In an advertise I read on the slot machine, it is said that VI is 11.3, so what can I tell from that number? Is the range of VI is from 0 to 100 so 11.3 means pretty low volatility index?
