# Definition of __Volatility__

## Volatility

A measure of risk based on the standard deviation of investment fund performance over 3 years.

Scale is 1-9; higher rating indicates higher risk. Also, the standard deviation of changes in the logarithm of an

asset price, expressed as a yearly rate. Also, **volatility** is a variable that appears in option pricing formulas. In

the option pricing formula, it denotes the **volatility** of the underlying asset return from now to the expiration

of the option.

Std Deviation = Rating

up to 7.99 = 1

8.00-10.99 = 2

11.00-13.99 = 3

14.00-16.99 = 4

17.00-19.99 = 5

20.00-22.99 = 6

23.00-25.99 = 7

26.00-28.99 = 8

29.00 and up = 9

## Volatility

The probability of change

## Volatility

a. Another general term for sensitivity. b. The standard deviation

of the annualized continuously compounded rate of return of an asset. c. A

measure of uncertainty or risk.

## volatility

A measure of the amount of change in the daily price of a security over a specified period of time. It is Uusually given as the standard deviation of the daily price changes of that security on an annual basis.

# Related Terms:

The expected **volatility** in a stock's return derived from its option price, maturity date,

exercise price, and riskless rate of return, using an option-pricing model such as Black/Scholes.

For an option, the variance that makes a call option price

equal to the market price. Given the option price, strike price, and other

factors, the Black-Scholes model computes implied **volatility**.

Ratio of excess return to portfolio standard deviation.

The risk in the value of options portfolios due to the unpredictable changes in the **volatility** of

the underlying asset.

The price **volatility** of a financial instrument relative to the price

**volatility** of a market or index as a whole. Beta is most commonly used with

respect to equities. A high-beta instrument is riskier than a low-beta

instrument.

The first complete mathematical model for pricing

options, developed by Fischer Black and Myron Scholes. It examines market

price, strike price, **volatility**, time to expiration, and interest rates. It is limited

to only certain kinds of options.

Refers to the **volatility** of returns on international investments caused by events associated

with a particular country as opposed to events associated solely with a particular economic or financial agent.

Performance measure invented by John Graham and Campbell Harvey. The

idea is to lever a fund's portfolio to exactly match the **volatility** of the S and P 500. The difference between the

fund's levered return and the S&P 500 return is the performance measure.

Performance measure invented by John Graham and Campbell Harvey. The

idea is to lever the S&P 500 portfolio to exactly match the **volatility** of the fund. The difference between the

fund's return and the levered S&P 500 return is the performance measure.

The ratio of **volatility** of the portfolio to be hedged and the return of the **volatility** of the

hedging instrument.

A strategy designed to reduce investment risk using call options, put options, short selling, or futures

contracts. A hedge can help lock in existing profits. Its purpose is to reduce the **volatility** of a portfolio, by

reducing the risk of loss.

Index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing **volatility**. Several portfolios are available, each with its own strategic balance of Index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually.

The ratio of the dollar price change in the price of an option to a 1% change in the expected price **volatility**.

The ratio of a change in the option price to a small change in the option **volatility**. It is the partial

derivative of the option price with respect to the option **volatility**.

The "what if" relationship between variables; the degree to which

changes in one variable cause changes in another variable. A specific synonym

is **volatility**.

## standard deviation

Square root of variance. Another measure of **volatility**.

## variance

Average value of squared deviations from mean. A measure of **volatility**.

## Vega

The rate of change in the price of a derivative security relative to the

**volatility** of the underlying security. When vega is large the security is

sensitive to small changes in **volatility**.

## Yield curve option-pricing models

Models that can incorporate different **volatility** assumptions along the

yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.

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