What is Stock Volatility?

Volatility is the degree of fluctuation of the price of financial assets. It is a measure of the uncertainty of the return on assets and is used to reflect the level of risk of financial assets. The higher the volatility, the more violent the price of financial assets, and the greater the uncertainty of the return on assets; the lower the volatility, the smoother the volatility of financial asset prices, and the stronger the certainty of the return on assets.

In an economic sense, the main causes of volatility come from the following three aspects:

1,

1,

The volatility of the underlying asset is an important factor in the Black-Scholes option pricing formula. When calculating the theoretical price of an option, the historical volatility of the underlying asset is usually used: the greater the volatility, the higher the theoretical price of the option; otherwise, the lower the volatility, the lower the theoretical price of the option. The positive impact of volatility on the option price can be understood as: for the buyer of the option, because the cost of buying the option has been determined, the greater the volatility of the underlying asset, the greater the possibility that the price of the underlying asset will deviate from the exercise price. The greater the possible gain, the buyer is willing to pay more premium to purchase the option; for the seller of the option, the greater the volatility of the underlying asset, the greater the price risk it bears, so it is necessary to charge a higher right gold. In contrast, the lower the volatility of the underlying asset, the smaller the possible gain for the buyer of the option, and the less risk the seller of the option will bear, so the lower the price of the option. ^[3]