What Is Implied Volatility and How Does It Differ from Historical Volatility?
Implied volatility (IV) is a forward-looking measure, representing the market's expectation of the underlying asset's volatility over the life of the option. It is derived from the option's current market price.
Historical volatility (HV) is a backward-looking measure, calculated from the underlying asset's past price movements over a specific period. IV is a key input for pricing options.
Glossar
Historical Volatility (HV)
Metric ⎊ Historical Volatility (HV) serves as a quantitative measure of the dispersion of an asset's returns over a specified look-back period, providing an objective, backward-looking assessment of price movement magnitude.
Past Price Movements
Volatility ⎊ Past price movements, within cryptocurrency and derivatives markets, represent a historical record of asset price fluctuations, crucial for assessing risk parameters and informing option pricing models.
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.