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in ACCA p4 value at risk video in opentuition
what is the reason behind squaring standard deviation(=SD) ?
why is it SD^2 = 6 x SD^2
why can’t we just multiply 6 x SD(standard deviation) to get the standard deviation of 6 years ??
opentuition video in value at risk does not seem to explain in detail the reason behind it…
thank you in advance John !
I do explain in the lecture – it is because we multiply variances and the variance is the standard deviation^2.
However all you need to learn is the end result, which is that the SD for n years is equal to the square root of n x the annual SD.
So the SD for 6 years is sq root of 6 x SD per year
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