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Volatility

/vɒləˈtɪlɪti/noun,verb

The term "volatile" refers to rapid and explosive change. Volatility in finance refers to the price fluctuation of a stock or asset. In general, volatility is measured by taking the average deviation of an asset over a period of time. Higher volatility is usually associated with increased risk.

There are two types of volatility in the market:

  • Historical volatility looks into the history of an asset price to determine the price fluctuation in a set time against its average.

  • Implied volatility reflects how the market expects volatility to be in the future.

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