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This is an excerpt from Nassim Taleb's book "Dynamic Hedging" (a book on option trading strategies) page vii

Most examples in this book are presented as generic situations. The volatility will be defined as 15.7% (to make one standard deviation equal to 1% daily move).

I'm trying to understand where the numbers 15.7% and 1% came from. How were they derived or estimated?


Edit: Adding more context, here's a screen cap of the actual text: enter image description here

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    $\begingroup$ Maybe the discussion under "Mathematical definition" on the wiki page will help? en.wikipedia.org/wiki/Volatility_(finance) $\endgroup$
    – gogurt
    Commented Oct 13, 2015 at 18:17
  • $\begingroup$ @gogurt Thanks... I think that discussion explains it! $\endgroup$ Commented Oct 13, 2015 at 18:19

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With a 248 day year, use $\sigma \sqrt{\frac{1}{248}} =.01$ to normalize for a daily $\sigma$ of $1\%$. This gives $\sigma \approx .157$.

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    $\begingroup$ Thanks Nassim ;-) ... as @gogurt commented, the "Mathematical definition" here has a clear explanation: en.wikipedia.org/wiki/Volatility_(finance) – $\endgroup$ Commented Oct 14, 2015 at 2:20
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    $\begingroup$ NNT, why 248 but 252 day year? $\endgroup$
    – BCLC
    Commented Nov 7, 2015 at 16:45
  • $\begingroup$ Update: NNT has edited! $\endgroup$
    – BCLC
    Commented Apr 16, 2017 at 22:27

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