Volatility Risk
Definition
What is Volatility Risk?
The risk that changes in market volatilityThe degree and frequency of price or return fluctuations. harm an investmentAn asset or commitment of money made with the expectation of future income, growth, or both. or strategy.
Example in practice
How This Looks in Practice
An option seller loses when implied volatilityThe future volatility level implied by an option's market price. jumps.
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Related Terms
Market Risk
The possibility of loss because broad market prices or rates move against an investment.
Risk TermsCredit Risk
The possibility that a borrower or issuer will fail to make promised payments or suffer a downgrade.
Risk TermsInterest-Rate Risk
The possibility that changing market interest rates will reduce an investment's value or income appeal.
MiscellaneousBusiness Day
A day on which relevant financial institutions and markets are open for normal processing.