The underlying volatility that is anticipated over the life of a derivative contract such as an option, a futures contract, etc. It is the amount by which a derivative is expected to fluctuate or change value in a given period of time. This measure of volatility is calculated using analytical tools, taking into consideration a number of factors including the expected volatility of underlying assets.

For example, the forecast volatility of an option is an estimate of the price fluctuation of the underlying stock over the span of a future period that corresponds to the expected life of the option. Calculation of forecast volatility depends on another measure of volatility known as implied volatility (IV), which is a measure of expected future volatility in the options market. Implied volatility is a key component of any option pricing model.

Forecast volatility is also known as expected volatility.