The degree to which an asset price varies over a period, often used as one measure of uncertainty and risk.
How it works
Volatility describes the magnitude and frequency of price changes. Historical volatility uses observed returns; implied volatility is inferred from option prices and a model.
Example
Two assets may have the same annual return while one experiences much larger daily swings and therefore higher realised volatility.
Limitations
Volatility is not the same as permanent loss and depends on sampling frequency and measurement window. It can rise sharply during market stress.
Evidence LedgerHow this insight was built
Human reviewedThesis being tested
This definition explains Volatility accurately, with its practical use and material limitations.
Key assumptions
- The named calculation or convention is stated where definitions vary.
- The example is illustrative and not a forecast or recommendation.
What could invalidate the view
- A different market, instrument, jurisdiction, or methodology may use the term differently.
- The cited authority may revise its guidance or terminology.
- Editorial ownership
- Market Master · reviewed
- Approval state
- Reviewed financial content
- Evidence currency
- Monitor for material changes
- Source coverage
- 2 documented sources
Sources used for this insight