
Historical Volatility (HV) is a measure of the fluctuations of the stock price (i.e. how volatile the prices had fluctuated) over a certain period of time in the past.
Suppose the daily closing prices of Stock X and Y for the past 10 days are shown as follows:
As can be seen from the data above, regardless of the direction (up or down), the closing prices of Stock X in the past 10 days have fluctuated / changed by $2 to $5, whereas Stock Y by $1 to $3.
Since given the same initial stock price of $100, Stock X has shown bigger fluctuation in terms of dollar, Stock X is said to be more volatile than Stock Y.
Now, suppose Stock Z has an initial...