The logarithm of a number is the exponent by which another fixed value, the base, has to be raised to produce that number. For example, the logarithm of 100 to base 10 is 2, because 100 is 10 to the power 2: 1000 = 10 × 10 = 103. More generally, if x = by, then y […]
Volatility and VaR can be scaled using the square root of time rule. According to this rule, if the fluctuations in a stochastic process are independent of each other, then the volatility will increase by square root of time. It provides exact volatilities if the volatilities are based on lognormal returns. In case of simple […]
The simple answer is the standard deviation of periodic returns. This video takes some sample data for closing prices of a stock and demonstrates how volatility is calculated in Excel. In finance, such as for price series, usually log returns are used, where log is the natural logarithm.
In the world of finance, it is not uncommon to hear about stochastic calculus or stochastic processes. While the name may sound daunting, the concept and its application in finance is actually relatively straightforward. A stochastic process, sometimes referred to as a random process, is simply a group (or “system”) of random variables and their […]
The world of financial markets has opened many opportunities for a variety of professionals and people with different qualifications. One such qualification that has found tremendous scope is a PhD in Mathematics. Even though math has always fascinated people, a few years back it was difficult for people to put their knowledge of statistics and […]
This video derives from the chapter 12 of the Book Quantitative Finance by Paul WIlmott. The video explains how to make money by trading on the differences between actual and implied volatility. One choice you have to make is whether to hedge using implied or actual volatility; they have different consequences in final profits and […]