What Is Implied Volatility (IV) and How Is It Different from Historical Volatility?
Implied Volatility (IV) is a forward-looking measure, representing the market's expectation of future volatility, derived from the option's current market price. Historical Volatility (HV), in contrast, is a backward-looking measure, calculated from the past price movements of the underlying asset.
IV is a key input into option pricing models, while HV is used to gauge past risk.
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.
Historical Volatility
Evidence ⎊ This metric is derived from the time-series of past asset prices, representing the actual realized dispersion of returns over a defined historical window.