Reader asks, "I have weekly volatilities over 370 weeks, I like to convert this into an annualized volatility. How does this work?"

Since volatility is weekly,

__in the linear case__the multiplier would be 52 (weeks per year) , so for volatility you should multiply your weekly volatility by √ 52.

In fact, the length of the measurement - 370 weeks - does not matter at all. If you would have 3 weeks or 7 weeks of weekly volatilities, multiplier would be the same. It is the frequency of observation that matters. To illustrate this consider another example: you have daily volatility over 370 weeks. To annulalize, multiply your daily volatility by √ 252 where 252 is the usual number of trading days per year in the US.

Hello..

ReplyDeleteWhen you multiplied daily volatility from sqrt(252) to convert it to annual volatility, is it based on particular assumption like each day volatility is independent and identically distributed or assumption free ? If it is based on assumption, how much these assumptions are valid ?