zerodha varsity show volatility calculation As Std deviation of daily return , Also Daily return calculation is done using LOG function .
Two doubts :
Why Daily return is used ? why cant we directly take closing prices and mean of closing prices and calculate std Deviation from same ? Finally we are interested in closing prices rt ?
Also couldn’t get Why Log function is used for e.g
Following are closing prices 100 , 101 ,103 , 102 , 104
So why Day 1 return is LOG (101/100) , why cant be it just 1/100 = 0.01 % or 1 as absolute number
Day 2 return is LOG(103/101) , why cant be it just 2/101 = 1.98 % or 2 as absolute number
I’m Confused about daily return word ?
Any explanation on same will be of gr8 help in understanding volatility.