From Joshi's Quant Interviews books:
The statistics department from our tell you that the stock price has followed a mean reversion process for the last 10 years, with annual volatility 10% and daily volatility 20%. You want to sell a European option and hedge it, which volatility do you use?
Apparently the answer is daily volatiliy 20% as the option price is monotonically increasing in volatility.
I dont get this. I thought that the B-S price used annual volatility. Why should we deviate from this?