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Volatility

A measure of the fluctuation in stock price per unit of time. Stocks that fluctuate more have higher volatility. Volatility generally is expressed as the annual standard deviation of the daily or weekly price changes in the security (where price changes are measured as the logarithm of the return over the day or week), written as a percent. A moving average of past volatility often is used to approximate future volatility in option pricing models.

The volatility estimate computed by the stock option calculator on the Should I exercise my stock options? page is based on the previous 52 weekly closing prices for the stock adjusted for dividends and splits.

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
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was last updated on Mon, Jun 13, 2011.
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