Volatility Back of Envelope Interview Guide
Volatility back-of-envelope interview guide for standard deviation scale, square-root time, rough movement ranges, and options caveats.
Candidates discussing risk, options intuition, or market movement estimates.
Volatility is a scale of movement
In interview intuition, volatility often describes the typical size of uncertain movement, usually through standard deviation or a related scale.
Use square-root time carefully
Some toy prompts use square-root time scaling for independent increments. State the assumption before using it, and name the time horizon being converted.
Concrete example
If a daily standard deviation is about 2 and independent daily moves are assumed, a rough two-day standard deviation is 2 times square root of 2.
Connect to quote width
Higher uncertainty can justify wider quotes or smaller size in market-making discussions, even when midpoint is unchanged.
Common mistakes
Candidates often use volatility language without defining the time horizon. Volatility over a day and over a year are not interchangeable.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.