Re: financial mathematics question

From: Nicolas Dickreuter (NOSPAMdickreuter_at_yahoo.com)
Date: 11/05/04 

Date: Fri, 5 Nov 2004 11:33:01 +0100

"Jon Miller" <jonmillere1@comcast.net> wrote in message
news:si0eo0p9mjm7g4tn3aedsptr2ni45iro44@4ax.com...
> On Mon, 1 Nov 2004 00:30:00 +0100, "Nicolas Dickreuter"
> <NOSPAMdickreuter@yahoo.com> wrote:
>
>>
>>"Gyude Bryant" <nospam@nospam.com> wrote in message
>>news:2ul23mF2aspr9U1@uni-berlin.de...
>>>
>>> "Nicolas Dickreuter" <NOSPAMdickreuter@yahoo.com> wrote in message
>>> news:cm3io0$b4s$1@newshispeed.ch...
>>>> A Share Index (e.g. NASDAQ) shows a compounded annual return of 8% and
>>>> a
>>>> yearly volatility of 24%
>>>> What is the expected return and volatility for 6 month / 3 years / 16
>>> years?
>>>>
>>>> Compounded return is r=LN (P1/P0). I think for the 6 months it is thus
>>> just
>>>> 4%. Is that correct? But what about the volatility?
>>>>
>>>> Any help is appreciated.
>>>> Nicolas
>>>>
>>>>
>>> yep. expected return.
>>> What is volatility? Variation in Price? So you got a high side and low
>>> side.
>>> Volatility would remain more constant over time periods
>>>
>>>
>>
>>Yes, volatility is standard deviation. That remains constant, even though
>>number of observations increase?
>
> No. The standard deviation is the square root of the variance. The
> variance for half a year is half the variance of a whole year. The
> variance for a time period of T is T times the variance of a time
> period of 1.
>
>>I have another question: What is the probability that the for the given
>>periods the return is less than 2%? Am I right in thinking that the I just
>>have to take the normal distribution with the according rate of returns
>>for
>>the given periods and the same standard deviation for all of them?
>
> Nope. You have to adjust the standard deviation as above. The
> standard deviation for a time period of T is (square root of T) times
> the standard deviation for a time period of 1.
>
> This is all in the standard literature. Do you have a standard
> finance textbook? For example, Weston and Brigham, _managerial
> Finance_. Or practically anything with that title, or something like
> it.
>
> Jon Miller

Found it
many thanks!

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