Variance is a measurement of the spread between numbers in a data set. The variance measures how far each number in the set is from the mean. Variance is calculated by taking the differences between each number in the set and the mean, squaring the differences (to make them positive) and dividing the sum of the squares by the number of values in the set.

Variance is one of the key parameters in asset allocation. Along with correlation, variance of asset returns helps investors to develop optimal portfolios by optimizing the return-volatility trade-off in investment portfolios. Risk or volatility is often expressed as a standard deviation rather than variance because the former is more easily interpreted.

Returns for a stock are 10% in year 1, 20% in year 2 and -15% in year 3. The average of these three returns is 5%. The differences between each return and the average are 5%, 15%, and -20% for each consecutive year. Squaring these deviations yields 25%, 225% and 400%, respectively; summing these squared deviations gives 650%. Dividing the sum of 650% by the number of returns in the data set (3 in this case) yields the variance of 216.67%. Taking the square root of the variance yields the standard deviation of 14.72% for the returns.

onlinelibrary.wiley.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.sciencedirect.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.tandfonline.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.tandfonline.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.worldscientific.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.tandfonline.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

link.springer.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.sciencedirect.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.tandfonline.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

www.tandfonline.com [PDF]

… in paradigm between the one presented by Bachelier [36] and the modern finance one known … 2.2.3. The actual replication process According to standard financial economics [20(b)], the payoff … on variance, but on mean average deviation, but it is expressed in terms of variance …

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