What is volatility in the world of finance?

Posted 23 January By Master Financial Risk ManagementIn Financial Risk ManagementTagged financial risk, financial risk management, master0 comments

The global marketplace is processing some difficulties in the last years. Nothing unexpected as we had observed some brutal changes in the administration of several countries. All these issues have emerged with a high level of doubt and instability related to the global economy. Therefore, we need to comprehend what is going on in our world to work efficiently with Finances. Here is when the concept of FRM emerges. It gives us a strong understanding of the underlying risk management in today’s ever-changing financial markets. Thanks to it, we can be expected to avoid risks and vicissitudes when we work with the capital. One of these actual difficulties is the volatility of market, but, what is it exactly? Keep reading to discover it!

Financial Risk Management

First, we should understand the implications of the FRM or Financial Risk Management. This concept envelops a series of strategies that allow professionals to identify the threats and cracks of the projects. If a financial expert can overcome and plan unexpected events, it would be like a saviour to the company. Financial Risk Management ensure you diverse paths to mitigate or avoid problems. So, you will be able to handle potential risks and act against them.

An effective risk management utilize strategies in order to recognize those risks. It is all about planning, preparation, observing the results and evaluating the effectivity of the plan. Financial Risk Managers are one of the most recognized experts in economy. Their strengths are especially helpful for companies or people with big patrimonies. However, the actual market place is changing desperately in a few years and professionals need to adapt faster than ever. Due to that, people are studying to become a better financier and work along problems as the volatility.


Volatility is a rate at which the prices can increases or decreases because of different factors. It is considered one of the most common but unpredictable risk in economy. Volatility relates to fluctuations in the returns of the underlying assets and studies the behaviour of it. Financial workers can use it to estimate changes that may happen in a period of time. Then, if the prices fluctuate fastly in a short span, it is high volatility. And so, if the changes are slow, it is low volatility.

It is important to understand that volatility is not the same as risk. We can the first concept as a part of the second one. Therefore, volatility is one of the several risk measures that we can use and manage. It is useful to study and analysis the behaviour of the asset markets for example. A financial expert can work with this variable in several ways and thanks to it he get into several jobs. In addition, there is a high demand nowadays due to the changes already mentioned in the market.


There isn’t an exact number of triggers that produce the changes in economy. However, we could say that one the main causes are the news related to expected future cash flows. It sounds simple, right? But, as others, it is an important aspect to the volatility. A set of decisions, new products or even speeches shapes the variations in economy. All this new information has an effect in the fluctuation of capital and therefore in the behaviour of the transactions. Yet, in reality, we do not really understand these changes, and we have difficulty linking volatility and movements in prices.

It is common that when we are thinking about what drives volatility, we only focus on the volatility going up. It is a risk and a difficulty to most of the corporations and countries. However, it is also vital to identify what drives volatility down. For the past few years, it seems that one obvious driver of volatility have been the central banks. They arbitrate in order to support their currency when the exchange rate becomes too thrilling. If it is not good for them, it is not worthy for the market.


Experts decidedly recommend to understand and know how to work with volatility. Therefore, become a professional with a master’s degree will help you to recognize all these topics. We want you to sign up for our Master’s degree in Financial Risk Management at the University of Alcalá. You will become a great financial expert able to work along volatility.  There is a great demand nowadays and business are looking for professionals as you! What are you waiting for? Contact us! We will be happy to help you.

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