A34. An entity should establish a process for estimating expected volatility and apply that process consistently from period to period (paragraph A23). That process
- (a) should comprehend an identification of information available to the entity and applicable factors such as those described in paragraph A32 and
- (b) should include a procedure for evaluating and weighting that information.
The process developed by an entity will be determined by the information available to it and its assessment of how that information would be used to estimate fair value. For example, consistent with paragraph A21, an entity’s starting point in estimating expected volatility might be its historical volatility. That entity also would consider the extent to which currently available information indicates that future volatility will differ from the historical volatility. An example of such information is implied volatility (from traded options or other instruments).
Source: Statement of Financial Accounting Standards No. 123 (Revised)