A Stylized History of Volatility

Forthcoming, Finance and Society, Vol 9, Issue 1, 2023.

60 Pages Posted: 21 Dec 2022

Date Written: December 9, 2022


The evolution of a quantitative approach to finance has proceeded through many small but significant steps and occasional large epiphanies concerning the management of volatility.

This article outlines how philosophers, physicists, and financial modelers have quantified the notion of derivatives, diffusion, risk, volatility, the riskless rate, diversification, hedging, replication, and the principle of no riskless arbitrage. Volatility, once a qualitative term, has become an asset that can be traded via models. But the models are always necessarily inadequate, and it is their very failure that opens up the possibility of trading the parameters they introduce.

Keywords: Volatility, Options, Finance, Philosophy

JEL Classification: G10, G12, G13

Suggested Citation

Derman, Emanuel, A Stylized History of Volatility (December 9, 2022). Forthcoming, Finance and Society, Vol 9, Issue 1, 2023., Available at SSRN: https://ssrn.com/abstract=4297590 or http://dx.doi.org/10.2139/ssrn.4297590

Emanuel Derman (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
212 854 9883 (Phone)

HOME PAGE: http://www.emanuelderman.com

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