Recent content by erasmus

7 Sales executives have 1 million dollars to divide amongst themselves. The most senior sales executive propses a particular split and then everyone votes (each person's vote is equal). If at least 50% of the people accept, then the money is divided the way that was suggested. Otherwise the...

Martinghoul: Would you mind having a look at what i posted above? Thank you.

That should be 365 * daily variance = (10%)^2

I found this one http://www.wilmott.com/messageview.cfm?catid=3&threadid=5603 Although i am still not clear on the arbitrage arguement (from a practical perspective). On the side something unrelated: If you know 1week atm vol traded at 10%, where should 6 day theoretically trade? If...

You can calculate the forward volatility between tenor 1, T1, and tenor 2, T2, using the formula below. Consider: T2> T1 Vol T2-T1= (((VolT2^2*)*T2-(VolT1^2*)*T1)/(T2-T1))^(1/2) What happens when Vol T1 > Vol T2 ? You can get situations where you have a negative in the sqrt function...

Hi just wanted to make sure i was correct in my thinking here: If i am short say a 30 delta call, then spot and vols going higher aren't good for me. If i consider 2 cases: 1) Spot moves up to my strike (here i have the shortest vega), and then vols move 1% higher, so i lose say X. 2)...

So basically because deep otm calls/puts have positive dvega/dvol, they will benefit from volatility being volatile itself (ie. as vols go higher you make progressively more and lose progressively less when vols come off) , which isn't the case for an ATM as you always have constant vega...

What is exactly meant by the term 'vol of vol' ? Is it the same as dvega/dvol? I have read that to be long a butterfly is to be long 'vol of vol'. Can someone elaborate on this more please? Thanks

If your selling high and buying low (on your delta hedging) - then you are short gamma. I'm not sure what you mean by "A" and "B" ? With the point about the black swan event, I would say that if there was a very violent move against you (say you are short an atm call and spot rallied...

When you say right about direction, you basically mean buying low and selling high right? So i'm going to take that as you being long gamma in that case. With this in mind, can you now elaborate (provide more proof) on your 2nd statement? Simiilarly for your first statement I will take that...

Is there a definitive answer to whether or not under and overhedging are equally risky? We could consider 2 cases, a) continuous hedging or b) hedging upon pre-determined movements in the underlying (every x points etc.) Obviously this would depend upon the sample path of the underlying...