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Enron Mail |
John, You are correct, when you compute the historical volatility you need to use= 252 days to annualize the volatility. This is because the historical data only existed for trading days.=20 The common practice here at Enron for computing Time to maturity is Calenda= r Days (=3D Maturity date - valuation date). Therefore the days in Year is 365.25. So the implied volatility from the E= IMPVOL function uses 365.25 days as one year. If you want to convert you can apply the following formula historical vol * sqrt(252) vs. implied vol * sqrt(365.25). Let me know if this helps.=20 Zimin John Griffith@ENRON 05/03/2001 03:31 PM To:=09Zimin Lu/HOU/ECT@ECT cc:=09Paulo Issler/HOU/ECT@ECT, Stinson Gibner/HOU/ECT@ECT, John Arnold/HOU= /ECT@ECT, Mike Maggi/Corp/Enron@Enron=20 Subject:=09Historical Volatility Zimin, I have a question about historical volatility. The way I have been calcula= ting historical volatility is that I take the standard deviation of the log= returns of the price settles. I then take that number (daily volatility) = and multiply by the square root of the number of trading days to come up wi= th an annualized volatility. The number of trading days that I have been u= sing is 252, however I do not know if this is correct. What I am trying to= do is calculate a historical volatility that would be comparable to the im= plied volatility that we are calculating our books with. The implied volat= ilities are iterated using the euro function. I get a straddle quote and I= iterate what volatility would be used to come up with that price ( I also = look at the eimvol function). I know that we use a 365.25 trading day conv= ention in pricing our options, does this mean that to come up with a compar= able historical volatility number I need to use 365.25 to convert the daily= historical volatility to an annualized volatility? Thanks again for your help. John Griffith
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