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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...

thanks for your reply, i am still not really clear on this rolling forward idea. I am thinking of two cases: Case 1: Sell the option now. Invest proceeds at risk free rate for remaining 3 months. Case 2: Exercise option now and lock in intrinsic value of 2000 jpy points. Invest this...

My university tutor was explaining this to me, was hoping someone could clarify: Say you have a 1year call on usd/jpy (i.e. call on usd, put on jpy). Strike is say 100. In 9 months time, spot is say at 120. If you wanted to sell the option, you have 2000 jpy points of intrinsic value and...

i'm clear on what these mean when you simply are running an option position without any delta hedging. I understand When you are long gamma and delta hedge, you in essence end up buying low and selling high. You will make back your decay if the actual volatility is higher than that which was...

if you have a daily volatility of say 10% p.a. how do you spread that over say 2 days? It should be the case that spreading it over a longer time interval means it decreases. I think it has something to do with the modifications of that standard formula sigma1=sigma2*sqrt(T) where you can, for...

Well yes it would be unlikely for the underlying to move +10points a day for 20 days straight. But the idea is that overall we need to have a 200 point move in either direction over 10 days so as to break even. So some days we could have large moves, others large negative moves etc etc but the...

My last post was correct right? btw, does anyone know of a DerivaGem like excel spreadsheet that shows graphs and stats of the greeks for different spreads? (Deriva gem only does single options)

ok so in order to breakeven on "each day" you would need the spot movement to exactly offset the theta for that day, but overall cant we say if eg. we had the upper breakeven was 200 points away, then 200/20 = +10point average movement per day required to break even ? and yes, this was more...

if you have a 1mth straddle you can easily get the breakeven points. You can see what movement in the underlying stock/exchange rate/etc. you need in order to break even, so you could divide that by say 24 trading days (1 month) to see on average the daily movement required to break even. Now...

just wondering if two underlyings have the same correlation (in terms of price), do their IV's also have that same correlation? also, with: http://www.risklatte.com/volatilityToday/volatilityToday041221.php under case 3, shouldn't the buying and selling of yen leave a net balance of...