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Explain merits and demerits of standard market practice

Explain merits and demerits of standard market practice to find the volatility as a function of underlying.

E

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On the plus side, it is not too difficult to do in theory. But on the minus side, the practice is much harder, the sought volatility function depending extremely sensitively upon the initial data. From a scientific view point there is much to be said against the methodology.

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