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No, volatility can increase as well as decrease returns.
by dojomouse 12y ago
No, volatility can increase as well as decrease returns.
- yummyfajitas 12y agoDownward volatility hurts you more than upward volatility helps you (on average). That's where the -sigma^2/2 term comes from.
- dojomouse 12y agoYes, so you could write r + (amount that upward volatility helps) - (amount that downward volatility hurts) > g