Explain the uncertain volatility

Question

Explain the uncertain volatility.

Answer 1

Uncertain volatility: The unseen volatility is an elegant solution for the problem of modelling it is also called uncertain, meaning that this is allowed to lie in a given range but whereabouts in which range it in fact is, or indeed probability of being at any value, which are left unspecified. With such type of model we no longer determine a single option price, but a range of prices, showing best-case scenario and worst-case scenario.