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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: d j chen who wrote (4171)	8/22/2000 2:35:26 PM
From: macavity	Read Replies (1) \| Respond to of 19219

This may help. N.B. some people annualise volatility to 365 days/yr others to 253 or 255/yr. I prefer a 25# as this corresponds to the trading days. There is nothing that I have found that explains it in a clear and concise manner. e-analytics.com Step 1 List of Prices for each period, P(i). (e.g Daily,Weekly,Hourly) Step 2 Convert period Prices P(i) to period returns r(i). Natural Returns r(i)={P(i)/P(i -1) - 1}, or Log Returns r(i) = Ln{P(i)/P(i-1)} Step 3 Determine the sample size to estimate the Standard Deviation over. e.g. 21 Periods (Days) or SD(21,i) - the 21 period standard deviation estimated at period i. Step 4 Calculate the Standard Deviation SD of the returns not the prices of each sample. In excel there is a formula for the standard deviation of a sample. SD(n,i) = Stdev{Cell(r(i)):Cell(r(i-[n-1]))} Cell() corresponds to the cell that contains the data. If not then you have to use a formula (see above web link) Step 5 Annualise the standard deviation to turn it a volatility Vol(i) = SD(i) x SQRT( NumOfPeriodsInAYear / NumOfYearsInAYear). Hint - NumberOfYearsInAYear is 1. N.B. If you use daily periods and asssume that there are 256 trading days in a year the SQRT of 256 is 16 Rule of thumb Vol ~ 16 x TheDailyStdDeviation. It makes sense to me but I will understand if it does not make sense to everyone. It took me a while all those years ago. Here is a site that may be useful. It did not work when I was surfing on it though. ivolatility.com In all honesty if you do not understand it do not try and code it. ( A little knowledge and all that). There must be a site on the internet that will do it for you. - macavity