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Feb
21
comment Under what circumstances would one want to delta hedge a straddle
your risk is your time decay, for example. It is a real and relatively estimable risk but nonetheless a risk. Too frequent hedges can become costly and can make that exercise costlier than the benefit it pursues.
Feb
20
comment Under what circumstances would one want to delta hedge a straddle
That is not entirely accurate. Even if you do not "have a view on the direction of the underlying" it can still be advantageous to not delta hedge. The real question is whether the risk outweighs the cost of the hedge or not.
Feb
20
comment Under what circumstances would one want to delta hedge a straddle
Your question is not clear. Are you asking about a zero delta exposure at contract initiation or during the life time of the position?
Feb
5
answered Library for interactive financial charts
Jan
26
comment When are implied and real world parameters the same?
@NathanMeibergen, I saw the answer and I do not fully understand why you need a derivation to prove your claim. An the same token, the one and single reason a risk-neutral probability is different from real probabilities being the existence of risk premiums in the real world
Jan
26
comment When are implied and real world parameters the same?
@Student T, All right, that nonetheless does not change that the answer is pretty obvious. Not sure an academic paper or derivation is necessary to prove that, but then I am addicted to simplicity rather than academic hoops.
Jan
26
comment When are implied and real world parameters the same?
I am afraid I do not fully understand your question. Yes, of course implied and future realized expectations are identical in the absence of risk premiums. They are also identical if the market priced future expectations correctly which is rarely if ever the case. What is your real question?
Jan
26
comment generalized black scholes
Try to derive d(ln S(t)) and see where that gets you...
Jan
26
comment generalized black scholes
Can you show some of the work you have done and where you are stuck? This is not a homework site, please show a bit of effort and I am happy to try to help and I am sure others as well...(I am saying that because your equation shown looks awfully similar than the notation in Shreve's book "Stochastic Calculus for Finance II". Except, one time you attempt denote tau with "T-t" the other with τ.
Jan
26
comment generalized black scholes
Just plug in the deterministic function of t and solve the equation. It is not that hard.
Jan
26
comment InteractiveBrokers server outage every Saturday
a) Attempting to connect to a different server via jts.ini will not change anything. IB will route you back to the server they have set for you on their server side. You need to request a server change and only then will your system connect to the changed sever address. b) IB does not provide full access throughout the weekend for historical software design reasons. It works for them and most every client which is why I do not expect this to change any time soon. The daily reset is actually more inconvenient to handle and again this originates from their original software design.
Nov
28
revised Longer term average probabilities of fills at fx ECNs?
added 141 characters in body
Nov
28
comment Longer term average probabilities of fills at fx ECNs?
I did not expect a specific number, I guess I just wonder what assumptions some of the underlying models make or how people model fill probabilities when testing new algos. I will edit my answer accordingly, thanks.
Nov
26
revised Longer term average probabilities of fills at fx ECNs?
added 27 characters in body
Nov
26
asked Longer term average probabilities of fills at fx ECNs?
Nov
7
comment Implied volatility and pricing of vanilla options
...be able to extract risk adjusted value. I do not have more to add to this except maybe mentioning that BS does not itself prescribe how you are to hedge an option position but its derivatives do prescribe how to hedge specific risks.
Nov
7
comment Implied volatility and pricing of vanilla options
I believe that implied volatility of any basic asset has to be formulated. Whether you agree with market consensus or whether you build your own forecasting model. The same applies to exotic products with complexity of your choice. The volatility models perused there depend on the very same basic building blocks such as a vanilla option and its implied volatility. So, even stochastic volatility models rely on the same basic mechanics than your own implied volatility forecasting model. Volatility is not deterministic and hence anyone who can model future volatility better than the market will
Nov
7
comment Implied volatility and pricing of vanilla options
Forget the "BS world". BS is a translation tool, it means next to nothing. It is a market agreed tool to statically express volatility in terms of currency denominated price. Hence it is completely irrelevant whether BS exhibits flaws or not as long as all market practitioners agree on the usage of the exact same tool (which they do, at least in the equity world). BS simply translates your volatility figure into a tradable price at inception of the trade. Nothing else. What the market is trading is volatility not option prices.
Nov
7
comment Implied volatility and pricing of vanilla options
Partially, instead of occupying your time to predict future option prices you can "simplify" by predicting the implied volatility. Not that it is any easier but you somewhat boil it down to the essential. Some option traders believe they are more successful at modeling volatility than modeling asset prices. Hence they hedge out other risk exposures and focus on volatility trading. Btw, other BS inputs are anything but static over time. Consider the underlying price, consider even something as "trivial" as dividend curves of single name equity options.
Nov
7
comment Implied volatility and pricing of vanilla options
As Mark Joshi pointed out your questions seem philosophical. Vanilla option prices are nothing more than a reflection of the market's take on implied volatility. How you arrive at such volatility estimate is entirely up to you. If you believe you have a superior model to arrive at implied volatilities (aka, if you think you are able to better predict future price variation of the underlying) then employ whatever you like and trade it against market prices. You should over time extract alpha if your model is indeed superior.