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This has nothing to do with upside or downside, it has to do with risk premium. If the implied vol for a single stock is realising break-even in a low-vol (normal) environment, it's a free option in a blow-up environment. So, any implied vol would be a combination of "actuarial" volatility and...

(a) I don't buy the overpricing of the index calls. If anything, longer-dated index calls are mostly overpriced (even with the skew) in most situations. Synthetic ways of selling upside vol, such as up-and-out calls produced great returns, especially over the last few years. This must be one...

I would venture a guess that it's not true and that there is consistent overpricing of implied volatility over realized, even for ATM options on boring stocks. Every convexity in the market has a slight risk premium to it, implied volatility is no an exception. If anything, event risk is...

It's their own flavor of variance units. Someone at DRW must have read this thread cause today the market is 25x25 up all the way to Dec14 :D

Well, an average "end user" should not care about 1/4 vol deviation from VIX-implied fair, especially considering that variance basis (or, in case of these things, b/o) is larger anyway. Most funds care about 2-3 vol edge vs realised var or term structure. It's in thousands of vega notional...

Oh, so here is my rant. So far, I see 0.75-0.5 wide 1-2k vega notional per side. My dog can make a market like that, especially considering that you can replicate it in vix futures. The only way this could work is if the primary MM (DRW in case of variance futures) is willing to show very tight...

I was pretty excited when the variance futures first came out, but my experience has been that it's something liquid in OTC is very hard to move it to the exchange. As for central clearing, IR swaps and CDS are already cleared through LCH and if I had to guess, variance will go the same way...

(a) CBOE has been trying to rescue these things, though I have zero expectation that it will work. They had a rep come by and be all lyrical how a lot of people do not give a shit want to quote these. This is take 4 at least, and all previous ones have failed). (b) if you think VIX futures...

You don't need to use Black-Scholes for that - just calculate your projected P&L based on greeks.

You "rate" here is a combination of dividends, borrow rate and the actual interest rate. That's why you are getting negative rates.

Further, the exposure of 70tn is absolute notional outstanding, whch is probably netted across counterparties in a rather benighn way. Unfortunately, people take notional exposure as some number that actually has significance while in reality it's risk that matters. For example, 2s/10s and...

Actually, most of the index skew is due to the correlation pickup at lower strike. Here is a simple example - ATM top 50 implied correlation for 1 month is in the low 50s while var-swap correlation is in the high 50s. So the skews in single stocks is obviously lower, if you measure it on...

Jews never had had a dominant role in the North American slave trade, probably under 5% in total volume/profits. But thank you for yet another urban legend. I think there is a big difference between buying oil from Iran in the 80s and trafficking in sex slaves. While I don't admire the guy...

Do you mean "operations" as in middle office or as in "head of derivatives trading"?

Trade a full variance strip (quadratic weighting on the strikes) and delta hedge daily. You mileage will vary.

Big? Yup, you have to be big. Successfull - well, being big IS successfull. Generates alpha? No real need. I will repeat one more time - there is no observable alpha in the performance of big funds. HFRX has underperformed S&P500 by 32% since the beginning of 2008 and we are talking about a...

I have a library of VBA functions, probably more useful and extensive then Hoadley that I've built over the years. Happy to share :)

For equity derivatives, you'd look at the "usual suspects" - MS and JPM, maybe Barcap. In terms of being a small firm, you are most probably out of luck. "Proper" funds start at a 100 these days and nobody is going to sign an ISDA with you untill you have this sort of AUM.

No, they are not. Berm switches do trade in the brokers fairly freuently these days, however. The market was kind-of dead for a while when Fannie/Freddie issuance was down, but recovered a touch because of the issuance of zero-coupon callables.