I'm looking into this article about var swaps: http://sbossu.com/docs/VarSwaps.pdf and not sure how to correctly interpret Exhibit 2.1.1.
"In this example an option trader sold a 1-year call struck at 110% of the initial price on a notional of 10,000,000 for an implied volatility of 30%, and delta-heged his position daily. The realized volatility was 27.50%, yet his final trading P&L is down $150k. Furthermore, we can see (Figure a) ....."
Is the trading p&l meant to be the delta-hedging p&l? It looks like it, but
- how come p&l is raising steadily even when stock price is rising? the trader should be losing money on the delta hedging because he is short gamma?
- why does it start from zero ? When trader has sold the option, he should have bought the stock and trading p&l at that point was negative?