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Volatility


Volatility   The magnitude of price (or yield) changes over a predefined period of time. The amount by which an underlying instrument fluctuates in a given period of time. Also, the gross price movement over a specified period of time given a minimum value unit.
 


Additional comments:

Options often increase in price when there is a rise in volatility even if the price of the underlying doesn't move anywhere.



Volatility is a primary determinant in the valuation of options.



There are two main types of volatility: historical and implied.

Related Terms

Historic Volatility
Calculated by using the standard deviation of underlying asset price changes from close-to-close of trading going back 21 to 23 days. A ...


Implied Volatility
The volatility computed using the actual market prices of an option contract and one of a number of pricing models. ...


Vega
The sensitivity of an option price to volatility. Typically, options increase in value during periods of high volatility. ...






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