MILLBURN, N.J. ( Stockpickr) -- Last week the markets endured a historical bout of volatility as global indices plunged around the world. Fears persisted as we entered the weekend only to be exacerbated by the Friday evening announcement that Standard & Poor's downgraded the long-term debt of the U.S. from AAA to AA+. Volatility surged as market participants bought insurance protection and began to panic.
Volatility can be measured in several ways:
- Implied Volatility: This is the volatility level which is used to price individual stock and index options.
- Historical Volatility: This measures the realized or actual volatility of an individual stock or index over a defined period of time.
- Volatility Index: This is a weighted average of implied volatilities for several index options for a particular index. The most popular volatility index is the S&P 500 Volatility Index, or the VIX.
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