Realized Volatility

Realized volatility

Sometimes referred to as the historical volatility, this term usually used in the context of derivatives. While the implied volatility refers to the market's assessment of future volatility, the realized volatility measures what actually happened in the past. The measurement of the volatility depends on the particular situation. For example, one could calculate the realized volatility for the equity market in March of 2003 by taking the standard deviation of the daily returns within that month. One could look at the realized volatility between 10:00AM and 11:00AM on June 23, 2003 by calculating the standard deviation of one minute returns.

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Realized Volatility

A measure of a security's stability (or lack thereof) over a given period of time in the past. While there are various way to calculate it, the most common way is to compute the average deviation from the average price over the period of time one wishes to measure. The realized volatility is often compared to the implied volatility to determine if a security is overvalued or undervalued. Generally, securities with a higher realized volatility carry more risk. It is also called historical volatility. See also: Volatility.