Volatiliteetit

Volatiliteetit refers to the degree of variation of a trading price series over time, as measured by the standard deviation of logarithmic returns. In financial markets, volatility is a measure of the rate and magnitude of price changes for a given security or market index. High volatility means that the price of an asset can change dramatically over a short period in either direction. Low volatility means that the price of an asset does not fluctuate wildly and changes in price are slow and predictable.

Volatility is a key concept in finance, particularly in option pricing. The Black-Scholes model, a foundational tool for pricing European options, uses volatility as a crucial input. Higher volatility generally leads to higher option premiums, as there is a greater chance of the option expiring in-the-money. Traders and investors often use volatility to assess risk. Assets with higher volatility are generally considered riskier investments because their value can fluctuate more dramatically.

There are two main types of volatility: historical volatility and implied volatility. Historical volatility measures past price movements. It is calculated by examining the standard deviation of historical prices over a specific period. Implied volatility, on the other hand, is forward-looking. It is derived from the current market price of an option and represents the market's expectation of future volatility. Implied volatility is often seen as a more relevant measure for trading decisions, as it reflects current market sentiment and expectations.