What is Historical Volatility?

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Accepted Answer

Historical Volatility (HV) is a statistical measure of the dispersion of a currency pair's price returns over a specified period, quantifying the degree of past price fluctuations; in FX markets, HV is a critical input for risk management, option pricing, and developing quantitative trading strategies, providing a factual, backward-looking assessment of market turbulence.

Historical Volatility

What is Historical Volatility?

What is the precise mathematical method for calculating Historical Volatility in the context of foreign exchange trading, and what are the key inputs?

How do FX traders and portfolio managers utilize Historical Volatility for risk management, position sizing, and setting stop-loss/take-profit levels?

Why is the distinction between Historical Volatility and Implied Volatility crucial for arbitrage and option pricing in currency markets?

When does Historical Volatility prove to be an unreliable indicator, and what are the common pitfalls or limitations when applying it to high-frequency FX data?

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