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AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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What is Volatility?

Volatility is a measure of the amount of uncertainty or risk associated with the size of changes in a security’s value. It is measured by calculating the standard deviation of the annualized returns over a given period of time. Volatility can either be measured by using historical prices or by using implied volatility. Historical volatility is calculated by taking the standard deviation of the natural logarithm of the asset’s returns over a specific period of time. Implied volatility is calculated by using option prices and is used to measure the market’s expectation of future volatility.

History of Volatility

The concept of volatility has been around since the early 1900s. In the 1950s, the concept of volatility was formalized by economist Harry Markowitz in his paper “Portfolio Selection”. Markowitz argued that investors should consider the risk of their investments when making decisions. He proposed that investors should diversify their portfolios to reduce the risk of large losses.

In the 1970s, the concept of volatility was further developed by Fischer Black and Myron Scholes in their paper “The Pricing of Options and Corporate Liabilities”. They proposed a model for pricing options that incorporated the concept of volatility. This model is now known as the Black-Scholes model and is widely used in the financial industry.

Volatility Comparison

Asset Historical Volatility Implied Volatility
S&P 500 15.2% 20.3%
Gold 13.4% 17.5%
Crude Oil 20.7% 25.8%


Volatility is a measure of the amount of uncertainty or risk associated with the size of changes in a security’s value. It is an important concept for investors to understand as it can help them make better decisions when it comes to investing. For more information on volatility, investors can visit websites such as Investopedia, The Balance, and Yahoo Finance.

See Also

  • Standard Deviation
  • Risk
  • Portfolio Selection
  • Black-Scholes Model
  • Options
  • Corporate Liabilities
  • Beta
  • Sharpe Ratio
  • Value at Risk
  • Expected Return

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