First of, thanks for doing this journal, as well as all the others under your various nicks that you have done over time. I have learned a ton from them.
I'm not sure I understand this answer however. Using corr between vol and price, skew and price or some such still requires you to forecast one of the variables, no?
Phrasing it in a different way: It sounds like you're using some sort of local vol methodology? You take current option prices as inputs and from them compute a distribution/tree of different future paths the underlying can take with different vols for each path (depending on price level and time). This calculated distro should be unique for the current set of observed option prices.
But that also means that there should be no edge in knowing this information bc current option prices already reflect this?
Are you effectively just forecasting future price or stat vol and then use it as an input in your local vol model to value the flies?
Or is it the case that market prices of some flies are actually mathematically inconsistent with the distro implied by other options on the same underlying? I would have thought the latter opportunity would not be available in this day and age...
thanks!
