Historical Volatility (HV)

The realized standard deviation of the asset's returns over a historical lookback window, typically annualized.

Historical (realized) volatility is computed as σ = std(log returns) × √252 for daily data. Common lookback: 20 or 30 trading days. Comparing HV to IV is a key trading signal: if IV > HV, options may be expensive; if HV > IV, options may be cheap. Note that HV is backward-looking while IV is forward-looking — they can differ substantially during regime changes.

Related Terms

Implied Volatility (IV)

The volatility that, when input into the BSM model, makes the model price equal to the market price of an option.

Volatility Smile

The pattern where implied volatility is higher for deep in-the-money and out-of-the-money options than for ATM options.