Timeline for Static and Dynamic Hedging of Vol/Var Swaps
Current License: CC BY-SA 4.0
4 events
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| Aug 23, 2023 at 5:41 | comment | added | Frido | @SI7 Great question / remark. The fact that only 3 options were used does not mean it only works for SV models with 3 parameters. The number of options depends on the expansion, not on the number of SV params. I could have continued expanding and included up to fourth moment of realized volatility. In that case I'd have 5 options. I could also have expanded to higher order in correlation (which is much trickier and work in progress). Using three options is let's say the lowest order expansion. Btw, it can also be used if smile is generated by variance gamma model I think. | |
| Aug 22, 2023 at 20:25 | comment | added | SI7 | nice work, Frido. However, I wonder if there are any liquid indices left in the market for which the market smile is generated by a stochastic volatility model (?) Wouldn't this imply that we can fit these curves with only three parameters which definitely is not the case for almost all indices right now? Did you have the chance to backtest this at some point? | |
| Aug 22, 2023 at 10:23 | history | edited | Frido | CC BY-SA 4.0 |
added 230 characters in body
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| Aug 22, 2023 at 10:14 | history | answered | Frido | CC BY-SA 4.0 |