We market make in highly liquid, near term options markets. I want to build a risk report that tells us how our portfolio's greeks will change as the underlying moves. This is for risk management in the face of unusually large moves, such as 2, 5 and 10% moves in the underlying. We are only trading vanilla options.
My starting vol curve takes IVs from the current market at every strike and lightly smooths them. I want to 'shock' the underlying & the vol curve in several different directions. Obviously, it is easy to shock vol up by 30% of current vol, but how do I predict how the curve moves when I shock the underlying up 5%?
Given that I am modeling large moves, I'm leaning towards using the "sticky delta" approach where the options with a given delta keep their volatility.