Annualized Historical Volatility
by admin on 23/07/09 at 1:20 pm
Annualized historical volatility is one of the key variables in the Black-Scholes formula, and is an important determinant of the value of an option.
The Annualized Historical Volatility Function
The function is called as follows:
AVol(Prices, Dividends, DataInterval, AnnualTradingDays)
The following is an explanation of the parameters used by the function.
Prices
An array or reference to cells that contain the set of periodic prices of the security whose volatility you wish to determine. If no dividend data is supplied to the function, the prices are assumed to be adjusted for historical dividends. Prices may be for daily, weekly, monthly, or any other regular data interval. A minimum of three data points must be supplied for this argument.
Dividends
An array or reference to cells that contain dividend data corresponding to the price data. The data range must match in size the range supplied for Prices. Usual practice is to reference one column in a worksheet for Prices data, and an adjacent column containing Dividends data corresponding to the Prices.
DataInterval
The number of trading days per interval in Prices. For example, 1 indicates daily price data; 5 indicates weekly price data; (AnnualTradingDays/12) indicates monthly price data. If omitted, it is assumed to be daily price data. The following shorthand notation for this argument can be used:
- “A” – annual price data
- “S” – semiannual
- “Q” – quarterly
- “M” – monthly
- “B” – biweekly
- “W” – weekly
- “D” – daily
Make sure that the values include quotes around them.
AnnualTradingDays
The number of days per year that the security is traded. If omitted, it is assumed to be 252. This argument is generally left at its default value, but it may be useful for analyses such as determining whether markets are “volatile” on weekends and holidays when no actual trading occurs.
