Why not just use close-to-close?
Close-to-close volatility only uses one data point per day — the closing price. It misses intraday movements entirely. A stock that opens at $100, spikes to $110, drops to $95, then closes at $100 would show zero volatility by close-to-close measures. The Yang-Zhang estimator captures this real movement.
What makes Yang-Zhang special
Yang-Zhang is a minimum variance estimator — it extracts the maximum amount of volatility information from standard OHLC (Open, High, Low, Close) daily price bars. It combines overnight returns (close-to-open), the Rogers-Satchell range estimator (using high/low), and a close-to-close component. Academic research shows it is 7-8x more efficient than close-to-close for the same number of observations.
Practical impact for traders
For premium sellers, accurate volatility measurement matters because it directly affects whether options look cheap or expensive. Underestimating realized vol means you think options are more overpriced than they actually are — a dangerous mistake. Yang-Zhang gives you a more honest baseline to compare against implied volatility.
How VolRadar uses Yang-Zhang
VolRadar computes 10-day, 20-day, and 60-day Yang-Zhang volatility for every ticker daily. These appear alongside ORATS 20-day close-to-close HV for comparison. The RV Ratio (HV 20d ÷ IV 30d) and VRP calculation (IV 30d minus HV 20d) use ORATS data. The ORATS-based metrics (RV Ratio and VRP), combined with VIX Regime and Term Structure, drive the overall Weather Score. Yang-Zhang appears on ticker pages for comparison but does not feed into the Weather Score. The result is a more accurate picture of actual market risk than platforms using simpler volatility methods.