The term “volatility” pertains to the statistical measure of the distribution of returns for a particular security or market index. Usually, the higher the volatility is, the riskier the security gets.
The measurement for volatility is usually expressed through standard deviation or variance between returns taken from the security or market index in question. It must be noted however that in the Securities Markets, the concept of volatility translates into big swings in either direction. For instance, upon the rise and fall of the Stock Market to more than 1% throughout a consistent period of time, the market would be called “volatile”.
The volatility of an asset is the main factor for pricing contracts.