We consider the classical investment timing problem in a framework where the instantaneous volatility of the project value is itself given by a stochastic process, hence lifting the old question about the investment–uncertainty relationship to a new level. Motivated by the classical cases of...

We show that under the Black-Scholes assumption the price of an arithmetic average Asian call option with fixed strike increases with the level of volatility. This statement is not trivial to prove and for other models in general wrong. In fact we demonstrate that in a simple binomial model no...