Page 4 - Calculating Historical Volatility flip_Float

Table 2 shows 10 day historical volatility as a time series (for 3 days).

What Number Of Days Should Be Used For Historical Volatility?
It’s best to avoid time periods too short or too long. Using a short time period or too long of a time
period each have their own problems.
A 5 day historical volatility chart will have a lot of noise, with extreme highs and extreme lows.

Consider 5 day historical volatility: Each day = 20% of the final number; each CHANGE is 25% of
the final number (4 changes)
A 200 day historical volatility chart will have very little noise, smooth with no extreme highs or
lows.
Consider 200 day historical volatility. Each day = .5% of the final number; each CHANGE is also
.5% of the final number (199 changes)

When using a very long sample like 200 day historical volatility you stand the risk of including the
distant past which may not reflect the current market.

Is There One Number We Can Look At?
If the purpose is to get a general sense of the assets volatility you can begin with the study which will
show the range and average volatility.
Use 5 years of daily closing price data and Calculate 20 day historical volatility for 5 years.

To calculate the range:

Create a histogram:
Using Excel you’ll need the high and low 20 day historical volatility number over the past 5 yrs.