Which of the variables affecting option pricing is not direc

Which of the variables affecting option pricing is not directly observable? If this variable is estimated to be higher or lower than the variable actually is, how is the option valuation affected?

Solution

Volatility is not directly observable

Call and Put option prices are directly proportional to volatility

So if one takes lower than actual, he would underestimate the option price

And if one takes higher than actual, he would overestimate the option price