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Unformatted text preview: T S ) 2 / ( ln 2  + T 4 The Lognormal Distribution E S S e S S e e T T T T T ( ) ( ) ( ) = = 2 2 2 1 var 5 The Volatility The volatility is the standard deviation of the continuously compounded rate of return in 1 year. The standard deviation of the return in time t is . If a stock price is $50 and its volatility is 25% per year what is the standard deviation of the price change in one day? t 6 Nature of Volatility Volatility is usually much greater when the market is open (i.e. the asset is trading) than when it is closed. For this reason time is usually measured in trading days not calendar days when options are valued. 7...
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 Spring '12
 LucyAckert
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