How does it compute stock pricing volatility?
The Volatility Tool takes up to 20 years of historical stock pricing data and computes an annual volatility based upon daily stock price changes. The stock price used in the computation is adjusted for splits, dividends and other unusual events (as derived from Yahoo!® Finance historical stock data closing adjusted price column). The mathematical description of the methods used are detailed in the included documentation. The following is a summarized description of the methods employed. The daily price changes are divided against the prior trading day’s price and the logarithm is summed and divided by the number of trading days in the annual period to compute an average price fluctuation. This average fluctuation is then subtracted from the same daily logarithm division and the sum of the squared differences is computed. The square-root of the is sum of the square differences (sometimes called the Root-Mean-Square or RMS) is then used to find the aggregate annual volatility. The logari
