What is the Square Root Rule?
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 returns the scaled volatilities are approximate.
Let's say the monthly volatility is 5%, then the annual volatility will be 0.05*Sqrt(12) = 17.32%.
Data Science in Finance: 9-Book Bundle
Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.
What's Included:
- Getting Started with R
- R Programming for Data Science
- Data Visualization with R
- Financial Time Series Analysis with R
- Quantitative Trading Strategies with R
- Derivatives with R
- Credit Risk Modelling With R
- Python for Data Science
- Machine Learning in Finance using Python
Each book includes PDFs, explanations, instructions, data files, and R code for all examples.
Get the Bundle for $29 (Regular $57)Free Guides - Getting Started with R and Python
Enter your name and email address below and we will email you the guides for R programming and Python.
