Economics Derivatives Questions
Volatility in derivatives trading refers to the degree of fluctuation or variability in the price of the underlying asset. It measures the level of uncertainty or risk associated with the price movements of the asset. Higher volatility implies larger price swings, while lower volatility suggests more stable and predictable price movements. In derivatives trading, volatility is a crucial factor as it directly impacts the value and pricing of options and other derivative contracts. Traders and investors often use volatility measures, such as the standard deviation or implied volatility, to assess the potential risks and returns of derivative investments.