3 Ch 10 Questions and answers, tran - Ch 10 Questions and Answers Question 10.1 The volatility of an asset is 2 per day What is the standard deviation

3 Ch 10 Questions and answers, tran - Ch 10 Questions and...

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Ch 10 Questions and Answers Question 10.1 The volatility of an asset is 2% per day. What is the standard deviation of the percentage price change in three days? Answer: % 46 . 3 3 % 2 Question 10.2 The volatility of an asset is 25% per annum. What is the standard deviation of the percentage price change in one trading day? Assuming a normal distribution with zero mean, estimate 95% confidence limits for the percentage price change in one day. Answers: The standard deviation of the percentage price change in one day is % 57 . 1 252 % 25 The 95% confidence limits are from 3.09% to +3.09% Question 10.3 1
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Why do traders assume 252 rather than 365 days in a year when using volatilities? Answer: Volatility is much higher when markets are open than when they are closed. Therefore, traders measure time in trading days rather than calendar days. Question 10.5 Suppose that observations on an exchange rate at the end of the past 11 days were 0.7000, 0.7010, 0.7070, 0.6999, 0.6970, 0.7003, 0.6951, 0.6953, 0.6934, 0.6923, 0.6922. Estimate the daily volatility.
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