Knowledge · Terms · VRP

VRP

Indicator concept
Variance Risk Premium (implizite vs. realisierte Vola)
Difference between implied vol (from options, e.g. Deribit DVOL) and realized vol. Low/negative VRP = realized vol is already running hot → volatility expansion ahead.

What is the VRP?

The variance risk premium is the gap between the future vol the options market prices in (implied vol, e.g. the Deribit DVOL index for BTC) and what actually materializes (realized vol):

VRP ≈ implied_vol² − realized_vol²      (often viewed as a ratio/percentile)

Normally the VRP is positive — option sellers demand a premium for bearing vol risk (analogous to an insurance premium). When it turns small or negative, realized vol is outrunning what's priced in → a hint of imminent vol expansion.

Why it matters for Botty

Mean-reversion entries (e.g. Bollinger Bands / bb_extreme) live off reversion to the mean — a vol expansion is poison, because price then breaks through instead of reverting.

How Botty uses the VRP

  • Loaded from backtesting/data/vrp_4h.parquet via data/vrp_data.py.
  • Filter vrp_filter (strategies/conditions/filters.py): blocks entries when the rolling 90-day percentile of the VRP is below vrp_min_percentile (default 0.2) — low VRP = expansion ahead = bad for mean reversion.
  • Derivation: ML experiment #19 (DVOL/VRP IC −0.28 vs. forward 4h vol, 16/16 windows).

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