I'm reading this: https://www.cmegroup.com/trading/fx/files/a_estimation_of_security_price.pdf

and am a bit confused as to why the "classical equation" on page 3 does not divide by n-1 nor use the log prices. I'm assuming C is just the closing price itself.


  • $\begingroup$ Please paste the equation in to the questions, as link will break. $\endgroup$
    – rrg
    May 24 '18 at 22:48

Read the document carefully:

Thus in the geometric case, "price" would mean "logarithm of original price", and "volatility" would mean "variance of the logarithm of original prices"

so the difference is really the log-return.

Now, the formula you are referring to is the estimator of the variance on one particular day given that only daily returns are observed. What you have in mind is the sample volatility estimated from many returns.


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