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Do you know how much internet porn you can buy for that money? And yes, unlike the aforementioned product, internet porn, with some manual labor, does produce a payoff.

Gamma is a bit cheaper on the board There are advantages and disadvantages to both, it's too complex to get into at the moment.

The idea behind convexity hedging is that since you are short options in the form of being long MBS, you buy them back at the level where you think prepayments are going to be the most rampant.They can;t just match the expected post-prepayment duration using linear products (which futures are)...

Yep, vega risk (reverse bleed) is the main problem with this position. The other problem is that you are short wings in massive amounts and can be caught with your pants down. In addition, unless you are a marketmaker, it's hard to buy the wings back at a reasonable cost when the front option...

Granted. Yes, in attempts to correct one problem he created another, but you can't disagree that with all of the "problems" we had a pretty good sail for the past 14 years. Could you formulate a policy that would have been less prone to asset over-appreciation and at the same time would...

In general, yapping about his shortcomings is pretty easy, as he had his shareof bad calls (not that Caroline has EVER been right on hers). However, as I said before, even on the hindsight, no alternative to his agressive monetary policy has been offered in either of the articles.

In my world, I usually see this whan mortgage servicers come into the market and bid up the long-dated vols. The skew on the longer expiries is higher as is (they tend to be more normal then the close expiries) and if the vols are up, it is a bit of a free lunch . However, I don't see how you...

It is very easy to say "I would have done it better", but I've yet to see anyone of his critics to form a reasonable monetary policy, even in the hindsight. The ones that are here, could you formulate your hypothetical actions as Fed Chairmans during the past 10 years, starting with 1995...

Oh, I see. I never gotten used to the vertical vs horisontal vs diagonal terms, you never really hear them in the rates world.

Could you elaborate on that one? I've never even heard these terms, does it somehow have to do with term structure vs the cross-strike vol differences, or am I off base?

Not me, certainly :) In any case, the deal with long theta/long gamma position is as follows. You can't put it up on a flat vol surface, as it is theoretically impossible. However, if you have a steep term structure of vols or/and a steep skew on the longer dates, it is possible to enter...

Ok, so you are trading the forward vol (not sure which way, so far). It's a pretty common strategy, for instance, I do something like this on the NFP dates - buy the event ATM and sell the wings a couple weeks after. You get the advantage of both the realized vol for the event and the selloff in...

erm, I just realized I called him a poor kid - does that make me an old fart?

All right, let's stop picking on the poor kid, he will learn sooner. Book-reading argument aside, the idea of calendarising spreads to have vega pay for you gamma is a common thing. At the right time you can structure yourself a position with both positive gamma AND positive theta. Of course...

Dude, you are not playing the vol skew, you are playing the forward volatility. You should at least know the difference if you are calling yourself a vol trader. This said, there are forward skew strategies, but they are very, very vega intensive and are mostly for MMs who can hedge their...

I'd sell you a 4y10y payer swaption (a right to enter into a pay fixed swap) at a reasonable cost. Or would you rather have an american touch at 10% in 10s? On a more serious note - if you do have such a long term view on the interest rates, why not look into buying/selling one of the...

That's just not true, dude. If you actually did trade IR derivatives, you'd never say this. Here, read this:

There is a big difference between skew and smile, one is caused by market's perception of process (i.e. normal or lognormal or something in between) vs smile, which is caused by vol-of-vol/gap premium in the vols. This said, the skew in rates market is usually driven by the fact that rates...

SABR will bring nirvana to you. You can find a summary paper for example here http://www.riskworx.com/insights/sabr/sabr.html. In short, you calibrate the skew and curtosis parameter once in a few month and only adjust the alpha based on ATM volatility. Correct delta and vega dynamics are...

I dont know what products you trade, so I'll keep this general, You should think of two separate components. There is the skew component, which is mostly dependent on the markets perception of the underlying process, and then there is the smile, which is the premium charged by the market for the...