Volatility is important to financial analysts for several reasons. Perhaps most obvious, estimates of volatility, together with information about central tendency, allow us to assess the likelihood of experiencing a particular outcome. For example, we may be interested in the likelihood of achieving a certain level of wealth by a particular date, depending on our choice of alternative investment strategies. In order to assess the likelihood of achieving such an objective, we must estimate the volatility of returns for each of the alternative investment strategies. Financial analysts are often faced with the task of combining various risky assets to form efficient portfolios- portfolios that offer the highest expected return at a particular level of risk. Again, it is necessary to estimate the volatility of the component assets. Also, the valuation of an option requires us to estimate the volatility of the underlying asset. These are but a few examples of how volatility estimates are used in financial analysis.