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Right, you are beating the S&P or whatever benchmark you set for yourself. But do you know what kinds of risks are you running? Also, what makes you think that whatever black magic you are doing would work on a portfolio of 100M? BTW, what's with the "money management" - why not look for a...

agree, classical 1:1 it is not vega neutral, but you could ratio it such that both short and long legs would be vega-identical. But as i said, it would not stay there ( and you said that too, i should read more carefully). As for risk, nobody is required to actually sell/buy naked - make each...

I wounder if it is really possible to figure out a vega neutral but short/long theta strategy. For example, a long calendar could initially be vega neutral, but it probably would not say vega neutral forever :) Well, if you do belive that volatility is mean reverting, the statistical edge is...

yep, it is probably the best starter book out there. it was a bit strange though that he lists Hull as "Advanced Book" :)

Will this work? ___/\____ long iron gut butterfly: +call -call -put +put, (strike1 lower than strike2 lower than strike2 lower than strike4) ___ ____ ......\/ short iron gut butterfly: -call +call +put -put, (strike1 lower than strike2 lower than strike2 lower than strike4)

A CMU dergree could get you a quant position, same goes for a physics/math phd. If you are planing to trade derivatives, especially more complex ones, being a desk quant is probably the best single way to get there. To be honest, desk quant is such a good spot that I even know a few derivatives...

The rates vol curve has significantly flattened over the past few days, increasing at the long end and decreasing on the short end. On the other hand, the rates have steepened even more - and I know a whole bunch of people that got screwed this week.

IR derivatives, mainly IR options. muni derivatives as well as mortgage derivatives are very rich products, lot's of flavor - fun to trade.

Sorry, i should have explained - cap vols are volatilities of interest rate caplets that are quoted in the LIBOR market. You could use it with equities, certainly - i think someone from my neck of the woods tried it with some index options.

These days the mortage banks usually enter into CMTR or LIBOR CMS swaps to obtain a consistent source of funding. long bond + short cash = repo short bond + long cash = reverse repo I do not know about individual (a human being), but as far as I know all dealers offer these services ?

i think i found it, but it is on cap vols.

I have a small spreadsheet I wrote to test it - i will look if i can find it. The great thing about SABR is the stability of vega hedges - some nameless company (starts with N and ends with A) made a lot of money using SABR.

"There are stochastic volatility models out there to overcome this problem." I see you've read the SABR paper :)

"it has outlived its usefullness" Nothing will ever replace BS for calculation of implied vols of the market. Similariliy, if you have a good local vol model (i.e Derman/Kani or Heston or any other) for interpolating vols between liquid points, BS is the best way to get the price. For...

Buying/selling securities of different nature from the same issuer, the most natural being straight bond vs. equity (a kind-of degenerate CB arbitrage). These kinds of arbitrage require good estimates of recovery rates and liquidity premia, both of which are notoriously difficult to model...

I am not sure we are talking about the same thing. what is your definition of capital structure arbitrage?

Firstly, prop trading as an alternative to trading for a big institution is ill-defined, there are plenty of prop trading desks at big banks or large hedge funds. However, it is a totally different game. I can not imagine someone with 10K (as someone mentioned here) and a high school education...

Feel free to ask questions - i am bored these days for reasons too sad to discuss here.

a) Compute what the implied volatility is Ok, implied vol tracks back to the issue of using either local volatility models or stochastic vol models. For the local vol model, Derman/Kani paper has all the answers, but it is not trivial to implement. In terms of stochastic vols i recommend...

Best for what kind of options? equity? fx? futures? But in general, the main two impovements are 1. Using a yield curve, not constant rate as an interest rate. It is probably most reasonable to use LIBOR rather then treasury, but I am biased there. 2. Using a local vol model...