Total rookie question....

Discussion in 'Options' started by thenewguy, Jul 22, 2005.

  1. kut2k2

    kut2k2

    Thanks for another informative post, Martin.

    Here's what I found on Rogers-and-Satchell:

    It is designed to be 'drift-independent'. I'm not sure what the advantage of that is.

    The n-day volatility_RS is

    (volatility_RS)^2 =
    (1/n)*SUM_from_i=1_to_i=n[ ln[Hi/Oi]*ln[Hi/Ci] + ln[Li/Oi]*ln[Li/Ci] ]

    This is apparently designed to measure the deviation from the trendline between Oi and Ci for every day from i=1 to n. It is an all-intra-day (no interday) measure.
     
    #21     Jul 26, 2005
  2. kut2k2

    kut2k2

    You want to use the log definition, because a key assumption of Black-Scholes is that price is lognormal, that is, price returns as measured by ln[CLOSEtoday/CLOSEyesterday] have a normalized Gaussian probability distribution.
     
    #22     Jul 26, 2005