How Does 'Implied Volatility' Differ from 'Historical Volatility'? ⎊ Path

How Does ‘Implied Volatility’ Differ from ‘Historical Volatility’?

Historical Volatility (HV) is a backward-looking measure, calculated based on the past price movements of the underlying asset over a specific period. Implied Volatility (IV) is a forward-looking measure, derived by inputting the current market price of an option into a pricing model (like Black-Scholes) and solving for the volatility.

IV represents the market's expectation of future price volatility, while HV represents what has already happened.

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Glossar

Implied Volatility

Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.