The standard deviation of continuously compounded changes in the £/$ spot rate is estimated to be $\sigma$ = 0.0082 = 0.82% per trading day. There are 252 business days in a year. Assuming zero volatility on nontrading days (weekends and holidays), what is the annual standard deviation of continuously compounded changes in the £/$ spot rate?

Question

Quizplus · Accepted Answer

The annual standard deviation is the square root of the number of trading days times the daily standard deviation. So, the annual standard deviation is $\sqrt{252} \times 0.0082 = 0.1302 = 13.02%$.

The Standard Deviation of Continuously Compounded Changes in the £ σ\sigmaσ

The Standard Deviation of Continuously Compounded Changes in the £ $\sigma$