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Basic Question 6 of 12
To calculate the historical annual yield volatility of a bond, an investor should decide:
II. Which calculation method to use.
III. How many days in a year to use to annualize the daily standard deviation.
I. How many daily observations to use.
II. Which calculation method to use.
III. How many days in a year to use to annualize the daily standard deviation.
User Contributed Comments 4
| User | Comment |
|---|---|
| katybo | and implied volatility? I think the question was not how to anualize std dev. |
| bmeisner | Yes there are also many different assumptions to be made such as if X-avg should be set to 0. |
| ljamieson | There was no mention of implied vol, only historical vol. |
| ericczhang | Even if the question didn't make it clear that they were talking about historical volatility, you wouldn't really annualize a less than 1-year option implied volatility to get a 1-year option implied volatility. It would either be a) the market for the options you choose to use assume volatility is constant, so your implied 1-year volatility should be the same as your less-than-1-year volatility or b) you have 1-year options available to directly take the 1-year implied volatility. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain how a bond's exposure to each of the factors driving the yield curve can be measured and how these exposures can be used to manage yield curve risks;
explain the maturity structure of yield volatilities and their effect on price volatility.
CFA® 2025 Level II Curriculum, Volume 4, Module 26.