Calculating Volatility
Overview
The straight calculation of volatility is just a standard application of the formula for
the
standard deviation
of a series of random variables.
Simple Standard Deviation
Assuming the following stationary time series
{% X_1,X_2,...,X_n %}
The mean of the series can easily be calculated
{% \mu = \frac{1}{n} \sum X_i %}
{% variance = \frac{1}{n-1} \sum (X_i - \mu)^2 %}
Note the factor of {% n-1 %} in the denominator, which is there in order to make the estimate
unbiased.
{% vol = \sqrt{variance} %}
