Volatility risk is a type of financial risk that arises from the uncertainty of the future price movements of a financial asset or portfolio. It is the risk of experiencing unexpected losses due to sudden and significant changes in market volatility.

Volatility is a measure of how much the price of an asset fluctuates over a given period of time. High volatility indicates that the price is fluctuating rapidly and unpredictably, while low volatility suggests that the price is relatively stable. Volatility risk is the risk that an investor's portfolio may be affected by sudden and sharp fluctuations in the prices of the underlying assets.

Investors who are exposed to volatility risk may experience significant losses due to sudden market movements that were not anticipated. This risk is particularly relevant for investors who engage in short-term trading or those who use leverage to amplify their returns. Managing volatility risk is important to help investors protect their portfolios against potential losses, and this can be done through diversification, risk management strategies, and investment in less volatile assets.

In summary, volatility risk is a crucial factor to consider when investing in financial markets, as it can have a significant impact on an investor's returns and overall portfolio performance.

Volatility risk refers to the potential for unpredictable and significant changes in the price of an asset or market. High volatility means that an asset's price can swing dramatically over a short period, increasing the likelihood of losses. This risk is crucial in financial markets, as it impacts the pricing of options, the stability of investment portfolios, and the cost of borrowing. Investors typically measure volatility through indicators like the standard deviation or the VIX index. While high volatility can offer opportunities for profit, it also poses substantial risks, particularly for those unprepared for sharp market movements. Managing volatility risk often involves strategies like diversification, hedging, or using financial derivatives to mitigate potential adverse effects.