What is Volatility?

01:13 Mins Read

Understand how Volatility is used in the option pricing formula to measure the return fluctuations of the underlying security.

Transcript

"What is Volatility? An integral part of financial data analysis is analysing market sentiment. The prices of assets traded on the market will move dynamically on a daily basis. Volatility is used in option pricing formulas to gauge the fluctuations in the returns of the underlying assets and It helps measure the risk of a security. The easiest way to calculate the volatility of a security is to calculate the standard deviation of its prices over a period of time. This can be done by using the following steps:
Daily Volatility Formula:
Annualized Volatility Formula: It is important to remember that a volatile market does not always mean that the investor will face heavy losses. It’s just a high-risk situation, which can be leveraged by investors in their own favour. To help you understand more about futures and things to do with it, we are here to help you. Read about importance and journey of technical trade analysis on Smart Money by Angel Broking."

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