Interview Question: Volatile Nature

Sample Question #58 (financial mathematics)

We do this kind of calculation all the time: given that a stock’s average daily volatility is 0.5%, what’s its annualized volatility?

(Hint: how do you measure a stock’s volatility?)

Advertisements
This entry was posted in Sample Qs. Bookmark the permalink.

One Response to Interview Question: Volatile Nature

  1. Brett says:

    ANSWER
     
    Before you answer the question, state the usual assumption that stock price movement is independent from day to day! That is, we usually assume there’s no day-to-day correlation. Also, you should know that a stock’s volatility refers to the standard deviation of its returns.
     
    So, if daily standard deviation is 0.5%, and a year has approximately 256 trading days with independent daily returns, so the annualized volatility is just 0.5*sqrt(256)=0.5*16=8%. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s