medium · Quantitative Finance qf-core
A strategy employs a 'square-root-of-time' scaling for risk.
If the daily standard deviation of P&L is $40,000, what is the estimated annual volatility (252 trading days) and what is the primary assumption required for this scaling to be valid?
- $2,520,000; The process is a stationary Markov chain.
- $634,980; Daily returns are normally distributed.
- $10,080,000; Daily returns follow a normal distribution.
- $634,980; Daily returns are independent (zero autocorrelation).
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