The skew part II

Quote from MasterAtWork:

Hi nitro



Please don't. :D
If you read some posts of Dmo you know that he got a problem with words like "always, never, ever, all, every, none..."
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Am I really that bad? And I thought I was ALWAYS reasonable! :)

Really, I think the one time I really made a bold claim was when I mentioned the negative correlation between the SPX and the VIX. And I kind of did it purposely, as a challenge to myself and my theory, knowing it would bring out the critics. If anyone could post a chart showing that's incorrect, I truly would be interested in seeing it. I think you challenged it MAW - didn't you mention a period of time in the late nineties (?) where the SPX jumped sharply, and you were sure the VIX must have jumped too? Unfortunately I don't have access to daily data that far back. But if you or anyone can find a chart where over a significant period that negative correlation does not hold, I would love to see it.
 
Quote from kinggyppo:

I second that motion, he has given out more info for free than you would get in a $2,0000 seminar, along with riskarb option coach and a few others. By the way if you you write an ebook for this type of info I would gladly buy it. :)
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I'm delighted to hear it's helpful. Funny you should mention a book - many many years ago I thought of writing a book, as there were absolutely no good books on options available at the time. Then Shelly Natenberg - who was also in T-bond options at the time - came out with his book. It was so well done I thought anything I would write would be superfluous. But my interactions here have made me think that maybe it's worth looking into after all.
 
Quote from dmo:

Am I really that bad? And I thought I was ALWAYS reasonable! :)

Really, I think the one time I really made a bold claim was when I mentioned the negative correlation between the SPX and the VIX. And I kind of did it purposely, as a challenge to myself and my theory, knowing it would bring out the critics. If anyone could post a chart showing that's incorrect, I truly would be interested in seeing it. I think you challenged it MAW - didn't you mention a period of time in the late nineties (?) where the SPX jumped sharply, and you were sure the VIX must have jumped too? Unfortunately I don't have access to daily data that far back. But if you or anyone can find a chart where over a significant period that negative correlation does not hold, I would love to see it.
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As you want, I will ... :)
But, you started a thread about skew and I will quote the guy that is, throughout the world, known about that: Emanuel Derman.
So if you want some pictures about volty surfaces that have changed read thoses courses, you can skip the maths (I would explain it as far as I could if you want).

So yes you are that bad.:D

http://www.ederman.com/new/docs/laughter.html
 
Quote from dmo:

I'm delighted to hear it's helpful. Funny you should mention a book - many many years ago I thought of writing a book, as there were absolutely no good books on options available at the time. Then Shelly Natenberg - who was also in T-bond options at the time - came out with his book. It was so well done I thought anything I would write would be superfluous. But my interactions here have made me think that maybe it's worth looking into after all.
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Your ability to explain things is quite good. Very high signal to noise ratio! Start now laying out the skeleton and perhaps in a year or two you might have something. The work would be putting the flesh on the skeleton. Ciao. btw, next Friday's option expiry has shaped up to be VERY interesting.
 
In model-based pricing of options, it is assumed that options are JUST a derivative. Shorter term options may actually be more than just a derivative, as they can influence the movement of the underlyer. In such cases, models such as the BS model, are not applicable, and skew seems to me to normal, as each strike gives its own unique influence on volty (volatilty of underlyer + influences on it resulting from option trading at different strikes).
 
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