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Quantitative Finance · Glossaire

Qu'est-ce que « Volatility decay » ?

Definition 14.12 Markets I: The Ecosystem and Exchange-Traded Markets · Chapitre 14 — Exchange-Traded Funds

Volatility decay is the shortfall of a leveraged fund’s multi-day return relative to β\beta times (or the β\beta-th power of) the index’s return over the same period, caused by daily resetting in a volatile market.

One simulated year with a daily volatility of 2% and daily returns that sum to zero. The index ends 5.8% lower; three times that would be -17.4\%; the three-times fund ends 41.8% lower. Data: the tutorial’s simulation.
Figure 14.5. One simulated year with a daily volatility of 2% and daily returns that sum to zero. The index ends 5.8% lower; three times that would be −17.4%-17.4\%; the three-times fund ends 41.8% lower. Data: the tutorial’s simulation.
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