Realized Variance

Realized variance is an ex-post measure of the actual volatility experienced by an asset over a specific period, calculated by summing the squared returns of that asset. Unlike implied volatility, which is forward-looking and derived from option prices, realized variance is based on historical price data.

It serves as the benchmark against which volatility forecasting models are tested for accuracy. In quantitative finance, comparing realized variance to forecasted variance allows traders to determine if they are overpaying or underpaying for options.

High realized variance indicates a period of intense price action, often correlated with significant market events or protocol-level disruptions. Understanding the relationship between realized and implied metrics is essential for delta-neutral strategies and volatility arbitrage.

It provides a concrete metric for evaluating the true cost of market turbulence.