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(u)PSwhere Sa(n) is the price of the security at the end of daylogn.


If the volatility of a stock is .33, find the standard deviation of:

(see the attachment for the remainder of the question).

where Sa(n) is the price of the security at the end of day

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(u)PS where Sa(n) is the price of the security at the end of day log n.

Step 1

Recall the Black Scholes model derivation.

Log of the stock price is normally distributed.

The expected value of ln (ST / S0) is (µ - σ2 / 2) x T

Step 2

Hence, standard deviation of ln (ST / S0)  is σ x T1/2

Here, T = 1 day = 1/365

Hence, standard deviation of ln [Sd(n) / Sd(n...

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