FX volatility is a key, yet unknown parameter of an FX option premium, so dealers use implied volatility as a stand in. If actual volatility matches implied volatility over the life of that option it should cover the premium, with the disparity potential making FX volatility a tradable asset. Implied volatility therefore represents the expected realised volatility and should demand additional premium if its expiry includes a high volatility risk event, such as an election.
Historic volatility is actual/realised volatility over a particular time frame in the past and can provide a fair value measure upon which to gauge implied volatility.
Historic volatility is actual/realised volatility over a particular time frame in the past and can provide a fair value measure upon which to gauge implied volatility.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.