Explain volatility associated to the standard deviation
How is volatility associated to the standard deviation of the underlying’ return?
Expert
The real rate at which the underlying grows on average doesn’t influence the value. Certainly, the volatility, associated to the standard deviation of the underlying’s return, does issue. During practice, it’s generally much, much harder to estimate such average growth than the volatility; therefore we are rather spoiled in derivatives which we only require to estimate the relatively stable parameter, volatility2.
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