Question

The volatility of a share price affects the options price, the higher the volatility, the higher is the options price. There are many ways of computing volatility, but a popular method is to find the coefficient of variation of daily closing stock prices for a year. Calculate the volatility of the following share prices using daily closing price data from 1 Jan 2019 to 31 Dec 2019 in ASX from Yahoo Finance. BHP (BHP Group Limited) CSL (CSL Limited) CBA (Commonwealth Bank Limited) MYR (Myer Holdings Limited) (Please do not write equations in the solution. Embed Excel screenshots in your answers so that the marker can identify the procedures you have adopted to find volatility. Express volatility as %).

Answer 1

The coefficient of variation (COV) can determine the volatility of an investment. The COV is a ratio between the standard deviation of a data set to the expected mean.

Dividing the volatility, or risk, by the absolute value of the investment's expected return, determines the CV

​CV=μ/σ

​where:σ=standard deviation μ=mean​

Below table gives the data along with the coefficient of variation for all the stocks. I could not give all the stock prices as the data was alot.

I have taken the stock prices from Yahoo Finance.

DAily return is through formula log(today/previous day)

Std Dev. is through stddev formula

Mean is average of daily return of each stock

BHP	Daily Return	CSL	Daily Return	CBA	Daily Return	MYR	Daily Return
34		185		71		0
34	0.00%	189	2.17%	72	1.22%	0	-2.41%			BHP	CSL	CBA	MYR
33	-0.89%	189	-0.49%	72	0.07%	0	-3.73%		Std Dev	2.1%	0.0%	29.2%	0.0%
34	2.98%	188	-0.55%	73	0.94%	0	0.00%		Mean	0.06%	0.16%	0.05%	0.05%
34	0.12%	190	1.28%	72	-0.14%	0	0.00%		CV	0.027	12.818	0.002	4.067
34	-0.38%	195	2.69%	72	-0.19%	0	0.00%
33	-3.44%	196	0.70%	72	0.17%	0	0.00%
33	-1.06%	195	-0.65%	72	-1.10%	0	1.26%

Please reach out for further clarifications