Lesson 8 Introduction

Overview

In the previous lesson, we learned about risk management and hedging. In this lesson, we will learn more about the quantitative methods in risk management.

We will review some basic statistics topics, such as variance standard deviation as measures for dispersion, and learn how to apply them to the price data for our risk evaluations.

We will also learn about correlation, which basically explains how two variables are related, how two variables change together, and, if they are highly correlated, how they tend to move together.

Statistics and price analysis

Statistics can help traders evaluate and estimate price changes. Statistics could be used to summarize the data and also provide the accuracy of that summary. It can also be used to explore the relationship between parameters.

Learning Outcomes 

At the successful completion of this lesson, students should be able to:

• define, calculate, and interpret the standard deviation of the price;
• define, calculate, and interpret the volatility of the price;
• calculate the moving standard deviation for price data;
• calculate the moving volatility for price data;
• distinguish between high and low volatility in the prices;
• define, calculate, and interpret the correlation for given price data.

What is due for this lesson?

This lesson will take us one week to complete. The following items will be due Sunday, 11:59 p.m. Eastern Time.

• Lesson 8 Quiz
• Lesson 8 activities as assigned in Canvas

Questions?

If you have any questions, please post them to our General Course Questions discussion forum (not email), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.