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Beta Volatility
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"SQRT(260)" multiple factor in "WMT 10 Day Volatility" calculation
Would you please let me know why you include the "SQRT(260)" multiple factor in each "WMT 10 Day Volatility" and "S&P 500 10-Day Volatility" calculation? Does the "260" mean "260 Trading Days and assuming No Holidays, 5 Trading Days * 52 Weeks per Year?"
Thank you very much in advance for your ...
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1. Volatility is standard deviation of returns;
2. Volatility, or standard deviation is the square root of variamce;
3. The assumption that common option pricing and volatility models take that stock prices make the so-called Random Walk, i.e. the Brownian Motion => each particular increment of this random walk has variance that is proportional to the time over which the price is moving;
4. Since the daily variance is to be annualized => Hence, SQRT(260)" or the "Rule of 16".
Thx for making me to think about your presentation and calculation in this module. Cheers.
Peter C. Read More