Variance 
 • A measure of dispersion of a set of data points around their mean value. The mathematical expectation of the squared deviations from the mean. The square root of the variance is the standard deviation. 
 • Is a measure of volatility, risk, or statistical dispersion. It is the square of the standard deviation. The variance is calculated by:  computing the mean of the series
 then taking the deviation or subtracting the mean from each observation,
 square the differences or deviations for each observation,
 and divide the sum of the squared deviations by the
number of observations. This computation is the precursor to the standard deviation. The standard deviation is calculated by taking the square root of the variance. 

 Embedded terms in definition 
 Dispersion Mean Risk Series Standard deviation Volatility


 Referenced Terms 
 Black scholes option model: Is the seminal work about options pricing models. It was developed by Fisher Black and Myron Scholes. It initially focused on securities prices. Subsequently, it was refined by Fisher Black for the futures markets. Most options models depart from this seed. This important work was published by Fischer Black and Myron Scholes in the MayJune 1973 edition of The Journal of Political Economy. It laid the foundation for the quantitative analysis and practical calculation of puts and calls. The model indicated that options would eliminate risk from stock portfolios subject to some assumptions. The lognormal model stated that option values could be determined by using the current stock price, time left to expiration, the strike or exercise price, the Variance of the stock's rate of return (standard deviation applied) and the riskfree rate of interest.

 Country beta: CoVariance of a national economy's rate of return and the rate of return the world economy divided by the variance of the world economy.

 Country risk analysis models: Country Risk Analysis Models incorporate variables such as Debt Service ratio, Import Ratio, Variance of Export Revenue. Domestic Money Supply Growth Rate and others to predict the probability of debt rescheduling problems.

 Heteroskedasticity or heteroscedasticity: Is the condition where the residual Variance is nonconstant. This tends to happen in crosssectional analyses. It also occurs in various consumer, income, risk, and size of firm studies. This compares to Homoskedasticity.

 Homoskedasticity or homoscedasticity: Is the condition of constant residual Variance. This compares to Heteroskedasticity.


 Related Terms 
 Mean variance analysis Mean variance criterion Mean variance efficient portfolio Minimum variance frontier Minimum variance portfolio Portfolio variance Variance minimization approach to tracking Variance rule
