Standard Deviation (SD)

The square root of the mean of the squared deviations of members of a population from their mean. The most widely used measurement of variation about a mean and, for many purposes, a proxy for risk. The standard deviation of normally distributed random variables has many useful characteristics which, unfortunately, do not usually apply to distributions truncated or skewed by option payoff patterns. See Sigma s. See also Normal Distribution, Risk.

Note that the standard deviation for a sample is calculated by substituting n - 1 for n in the denominator.

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