Volatility target leverage calculator
How much exposure does a 12 percent volatility target allow when the forecast is 20 percent?
Divide the target by the forecast: 12 / 20 gives an exposure of 0.6. With a cap of 2 the cap does not bind, and under linear scaling the projected volatility of the position is 12 percent.
Moreira and Muir test a dynamic rule on lagged realized variance; this static quotient does not reproduce their reported performance.
Translate an estimated volatility and a risk target into a capped exposure multiplier. A declared exposure cap limits the implied multiplier.
Twelve against twenty
A 12% target divided by a 20% forecast gives exposure 0.6. With a cap of 2, the cap does not bind and the projected volatility under the linear scaling assumption is 12%.
A target specifies exposure from a volatility forecast. The quotient is the exposure that would exactly reach the stated volatility if the forecast were correct and risk scaled linearly. The cap limits that quotient; if it binds, the implied volatility will remain below the target under the same linear approximation. Forecast and target may both be daily or both annualized, but they must use the same units. For example, entering a daily forecast next to an annual target would inflate the multiplier without any real reduction in risk. A zero forecast is rejected because division by zero would manufacture unlimited exposure. A zero target gives zero exposure and is a meaningful boundary case. Moreira and Muir study a dynamic rule using lagged variance and its realized portfolio returns. The static quotient is a sizing step and does not reproduce their reported performance or justify a trading decision.
A quotient with a cap
The volatility forecast is measured on the same annual or periodic scale as the target. Volatility is assumed to scale linearly with exposure over the interval.
raw exposure = target volatility / forecast volatility; exposure = min(raw exposure, cap)When forecast volatility exceeds the target, the calculated multiplier falls below one. A cap limits exposure when forecast volatility is unusually small.
Forecast risk
The forecast can fail, and leverage changes the loss distribution as well as measured volatility. This static snapshot does not implement Moreira and Muir's dynamic strategy, its lagging rule, or its transaction costs.
Volatility-managed portfolios
Moreira, A. and Muir, T. (2017), Volatility-Managed Portfolios, Journal of Finance 72(4), 1611–1644. The exposure quotient is one component of the paper's dynamic method. Original or institutional source.
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</script>Cite this calculator
To cite the volatility target leverage calculator in a paper, a report or a post, copy the reference below. Its address is https://stochastly.com/tools/volatility-target-leverage-calculator.
Stochastly (2026). Volatility target leverage calculator [web calculator]. https://stochastly.com/tools/volatility-target-leverage-calculatorThe method behind the volatility target leverage calculator comes from the paper below: cite that paper for the method, and the reference above for the volatility target leverage calculator itself.
Moreira, A. and Muir, T. (2017). Volatility-Managed Portfolios. Journal of Finance 72(4), 1611-1644.