Historical Volatility

Historical statistical volatility is a measure of how much the stock price fluctuated during a past time period.

While historical volatility can be indicative of future volatility, it can also differ greatly from future volatility, depending on what was driving the price changes during the past period. Major expected news items are more important drivers of big moves in the stock price in the near future.

In short, historical volatility is a very rough guide for future volatility, and therefore for implied volatility, which is used to price options. However, historical volatility can be a poor guide for implied volatility in certain situations.

 

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