Volatility (Finance) Explained - Derivatives
In finance, volatility (usually referred to as σ ) is the historical volatility measured by a time series of past market prices. Implicit volatility looks to the future and is derived from trading in derivatives on the market. It is usually measured as a standard deviation of logarithmic returns and considers past and future. This is because over time, the probability increases that the price of the instrument will be further removed from the original price. Volatility increases linearly, and fluctuations are expected to equalize, so that the most likely deviation (twice as high this time) is not twice as large as the distance from zero. Gaussian random path (Vienna process), which follows the prices of financial instruments. This can lead to the price of the instrument rising or falling in the future. In today's markets, it is also possible to trade in volatility, but it does not measure the direction of price change. Volatility is measured only by the margin b...