1.
Volatility is a statistical measure of the dispersion of returns for a
given security or market index. Volatility can either be measured by
using the standard deviation or variance between returns from that same
security or market index. Commonly, the higher the volatility, the
riskier the security.
2. A variable in option pricing formulas
showing the extent to which the return of the underlying asset will
fluctuate between now and the option's expiration. Volatility, as
expressed as a percentage coefficient within option-pricing formulas,
arises from daily trading activities. How volatility is measured will
affect the value of the coefficient used. |
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