Volatility is a risk indicator that quantifies the price fluctuations of an investment during a certain period. The higher the volatility, the greater the upward or downward swing in the value of the investment and the riskier, but also more promising, the investment in the financial product.
A distinction is made between historical and implied volatility. Historical volatility describes the range of fluctuation of an object in the past. An investor recognises from this how risky an investment was.
However, such values from the past are no guarantee for future development. Therefore, calculations tend to use implicit volatility, which is calculated using current market prices.