Each axis of the image represents time, divided into discrete intervals. The resulting two-dimensional image is called a recurrence plot. The recurrence plot is a very efficient display method, conveying a great deal of information in the display surface area utilized. However, this is entirely appropriate to the objective of identifying close recurrences in time series data.
Recurrence plots are very useful for identifying recurrences in time series data.
However, the application of this display method to evaluating volatility has not been practiced. What is needed is a graphical display means that presents time series data in a form that permits rapid and accurate evaluation of changes in the data from one time to the next, discriminating clearly and strongly among small, moderate, and large price changes, while making efficient use of display surface area so that a plurality of time series can be visualized simultaneously within a limited total display area, such as a computer monitor. These needs are met by a method based on the two-dimensional image approach of the recurrence plot, but using colors to represent data values in a manner which is opposite to the use of color in the recurrence plot. In the case of recorded historical data, the colors for all small squares in all appropriate time intervals are stored appropriately arranged in computer memory and then sent as a single transmission to the display. The resulting display, using either a computer monitor or a color printer, is referred to as a volatility plot.