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I'm guessing ${W_t^r}$ and ${W_t}$ correspond to real and nominal endowment at time $t$, respectively, and that ${P_t^g}$ is the price level at time $t$. In that case, $W_t^r \equiv W_t/P_t^g$ follows, and if endowment grows at a nominal interest rate $R_t$, then $W_t = W_{t-1}(1+R_t)$. We can write $W_{t-1}=(W_{t-1}^rP_{t-1}^g)$, so by substitution ...


1

I think there are 2 approaches being a bit mixed up here. You can analyze the option market by looking at implied volatilities and apply Black-Scholes (BS), thus assuming that log-returns follow a Gaussian distribution. Implied volatilies are the parameters that bring together BS and market prices. Then you will observe a pattern of implied volatilies for ...


1

I'm currently also using daily returns which I want to annualize. This is my approach: For every month, I calculate the simple return using the formula: (end-of-month closing price / beginning-of-month closing price) - 1. I use the Excel formula somproduct(geomean(A1:A12+1)-1) to find the monthly compounded return. Finally, I annualize the result of step 2 ...



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