Are log contracts on (e.g) equities traded a lot in the market? I have seen that a lot of it is described for volatility modelling in bergomi's book. what is the liquidity of such options?

  • $\begingroup$ The log contract as a standalone derivative is not traded. But its combination with a delta-hedging strategy is, because that is a variance swap. $\endgroup$ – Frido Rolloos Oct 18 '19 at 6:24
  • $\begingroup$ thank you @ilovevolatility ! this is exactly what bergomi has mentioned in his book too. But he too mentioned that the log-contract is being statically replicated and risk-managed (delta hedged), i.e log-contract = portfolio of call/put options + delta hedge this. My next question: How do you delta-hedge the portfolio of infinite call/put options ? $\endgroup$ – Benedict Oct 18 '19 at 11:43
  • $\begingroup$ What do you mean exactly with how to delta hedge? Do you mean what implied vol to use for calculating the delta of the options? Or how to calculate the delta of the options given the implied vol(s) to use? $\endgroup$ – Frido Rolloos Oct 18 '19 at 12:33

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