Questions tagged [uncertain-volatility]

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Uncertain Volatility Model - Option Pricing R code help

I am trying to price the following call option using the UVM method in R. The code I wrote below keeps producing the same price for the min and max volatilities, which is wrong, however, I can't seem ...
6 votes
2 answers
205 views

On measurements of ambiguity and their shortcomings

Ambiguity in quant finance is defined as the uncertainty in the probabilities of the return distribution, whereas risk is defined as the uncertainty in the returns of the asset. There are various ...
2 votes
1 answer
609 views

Local volatility and Stochastic Volatility

Please help me understand similarity and differences between local volatility and Stochastic Volatility both intuitively and mathematically.
1 vote
0 answers
54 views

Would anyone understand how the BSB (cf. eq 33) were deduced?

I am trying to redemonstrate the dynamical programming equation and the compact formulation of the multiple-payoff problem given in the Appendix of the paper of Avellaneda on pricing and hedging ...
6 votes
3 answers
937 views

Uncertain volatility

Recently, I have encountered something called "uncertain volatility". Is it a popular concept in QF? Do practitioners use it nowadays? What are its pros and cons compared to e.g more familiar ...
5 votes
3 answers
609 views

Difference between risk and uncertainty

I'm reading the paper "Risk Measures in Quantitative Finance" by Mitra and Ji (2010). On page 2 it reads: We note that some Academics distinguish between risk and uncertainty as first defined by ...