Local Volatility
Categories: Metrics
Like...if you live on a fault line, or in the shadow of an active volcano. The people of Pompeii had a lot of local volatility.
Actually, local volatility is a way of understanding the likelihood of price movements in a security.
A stock (or whatever asset you're looking at) that moves around very little is said to have low volatility. One that moves a lot (often displays big swings in price) has high volatility.
Local volatility is a mathematical concept that helps measure volatility for an asset, and then predict what volatility will likely look like in the future. It helps in derivatives trading (trading in options and futures), as it can be used to determine optimal strike prices.
The typical measure used in options trading is called implied volatility. Local volatility attempts to offer a more fine-tuned approach.