Explain volatility associated to the standard deviation
How is volatility associated to the standard deviation of the underlying’ return?
Expert
The real rate at which the underlying grows on average doesn’t influence the value. Certainly, the volatility, associated to the standard deviation of the underlying’s return, does issue. During practice, it’s generally much, much harder to estimate such average growth than the volatility; therefore we are rather spoiled in derivatives which we only require to estimate the relatively stable parameter, volatility2.
The purpose that this is true is that by hedging an option with the underlying we remove any exposure to the direction of the stock, whether this goes up or down ceases to matter. Through eliminating risk in this way we also remove any dependence upon the value of risk. End result is that we may as well see we are in a world wherein no one values risk at all, and all trade-able assets grow at the risk-free rate upon average.
Normal 0 false false
Why is Value at Risk important? Specified with reasons?
What is GATT and what is its goal?
Explain an example of Brownian motion effects.
Explain the programme of study of finite differences.
Which is the deciding factor for rejecting or accepting proposed projects while using internal rate of return?
Explain actual volatility with desmond fitzgerald calls.
Explain the reasons of Quants to like, close form solution?
How can we estimate the payback period for a proposed capital budgeting project? What are the major problems of the payback method?
18,76,764
1923161 Asked
3,689
Active Tutors
1441183
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!