Volatility is a measure of risk in the markets. It is a measure of the dispersion, frequency and amplitude of movements in the markets over a period of time. In mathematical terms, volatility is the standard deviation of a financial asset.
Note that volatility does not tell you whether an asset or a market is rising or falling. Volatility only indicates whether there is a lot of variation from a trend.
On the spectrum of least- to most-volatile assets classes, the money market is the least volatile, the bond market is moderately volatile, and the stock market is the most volatile.
Banks offer a whole menu of derivatives products that allow investors to speculate on or hedge against volatility. In the same way, some market indices allow us to measure and track this volatility, such as the ViX created by the CBOE (Chicago Board Options Exchange).