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.
