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by carlob
4437 days ago
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I read this as an overly complicated statement of Jensen's inequality [1]: if f is convex <f(x)> ≥ f(<x>). Where <> denotes the expected value. This can be used to prove that the geometric mean is always smaller or equal than the arithmetic mean; obviously equality holds for x constant. So volatility drag is really just restating this very fundamental inequality. [1] http://en.wikipedia.org/wiki/Jensen's_inequality |
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