Returns, Volatility, and Simulation

Free GARP FRM Part I lesson in Quantitative Analysis. 18 min read, ~2,764 words.

Continuously compounded (log) returns are time-additive across periods; simple returns are not. Convert with R-cc = ln(1 + R-simple). Simple returns aggregate across assets, log returns do not. Volatility, variance rate, and implied volatility are distinct objects. Implied is forward-looking from option prices; the others are realized. Square-root-of-time scaling assumes...