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See institute solution to ST6—A2007 Q1 (iii) 7(b)

R

ruban

Member
How does the volatility = sigma when the variance is (sigma)^2.t?

How is volatility actually defined?

Is it not the square-root of the variance?
 
ST6 A2007 exam - volatility

I agree it looks a bit odd.

Volatility is the coefficient of dW(t) in the relevant SDE and is equivalent to the square-root of the variance.

The expression you quote for variance is for a general time t, but the volatility is the annnual volatility, ie for t=1.
 
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