A term that refers to the uncertainty or risk change in an underlying security's value. The higher volatility the more potential that the asset's value can be spread out over a wider range of values. |
Simply, volatility means that the price of the asset has in the past, or may in the future fluctuate dramatically over a shorter period of time, in either direction. Conversely, a lower volatility means that the price or security value will remain relatively range bound, steady over a certain period of time.
Subsequently, it is also a variable commonly used in option-pricing formulas. In this case, it reflects how the return of the underlying asset will fluctuate between inception and expiration.
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