Implied volatility

By | 2017-09-13T14:33:59+00:00 13th September 2017|

Implied volatility is the estimate of the volatility (violence of future movement) of
a security’s price by financial market participants. When expressed as a type of financial instrument, it estimates the future fluctuations of a security’s worth. The US “VIX Index” is an example. In general, implied volatility increases when investors are bearish, when investors believe that the asset’s price will decline over time, and decreases when the market is bullish, when investors believe that the price will rise over time. This is because of the common belief that bearish markets are riskier than bullish markets. As a financial construct, implied volatility is different from “realised volatility”, which is a calculation of past actual price fluctuations of a security or index.