Volatility

The tendency or ability of a liquid to quickly vapourize into the air.Examples of volatile liquids include alcohol and gasoline. Liquids that are volatile mustbe carefully dispensed and stored. This includes paying special attention to temperature.

In Finance, volatility equates to the variability of returns from an investment. It is an acceptable substitute for risk; the greater the volatility, the greater is the risk that an investment will not turn out as hoped because its market price happens to be on the downswing of a bounce at the time that it needs to be cashed in. The problem is that future volatility is hard to predict and measures of past volatility can, themselves, be variable, depending on how frequently returns are measured (weekly or monthly, for example) and for how long. Therefore, putting expectations of future volatility into predictive models is of limited use, but resorting to using past levels of volatility is equally limited.