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56 views

How to shock the IV surface w.r.t VIX and keep AOA

I have to compute the sensitivity of a set of option prices on a single sotck (range of tenor is over the whole surface) to an increase of 100% in the VIX.. and I am trying to get to the most ...
70 views

Does an option need to be tradable for Black Scholes pricing formula to hold?

Given the classic Black-Scholes model, e.g. $dS(t)/S(t)=rdt+\sigma dW^{\mathbb{Q}}(t)$ with $S(0)=S_0$ and $dB(t)=rB(t)dt$ with $B(0)=1$, whereby $r$ and $\sigma$ are constants and $\mathbb{Q}$ ...
33 views

Long Basis Trades - advantage if Fed cuts aggressively

If I enter into a basis trade where I buy the cheapest to deliver security and fund it in term repo until the last delivery date, while simultaneously selling the futures contract, do I simply earn ...
45 views

What models are used for pricing cliquet options (esp. for Asian Equity underliers)? How good is Bergomi model?

What are the most common models, actually used by trading desks for Asian underliers, for pricing cliquet options? I would like to know both - (1) the production model used for daily P&L, and ...
46 views

Calibrate a model parameter with an error function

Suppose I want to find the implied volatility using an option model from market prices. Surely I can find the implied volatility for each strike price ($k$ different strike prices) for a given ...
16 views

Regression Assumptions for Fama French 3 factor model and Carhart 4 factor model?

i want to run regression for Fama French and Carhart model for my thesis. so, should i check all the regression assumptions or only multiocolinearity.?
33 views

Stochastic discount factor for factor research

Often, after presenting a new factor technique, the paper calculates an SDF by doing $\Sigma ^{-1}\mu_F$ i.e. mean variance optimization on the factors. What is the significance of doing this ?
31 views

37 views

How To Calculate The Implied One Day Expected Return For Earnings

I am trying to figure out how to calculate the one day expected return given I have the event volatility. In his book Trading Volatility, Correlation, Term Structure and Skew, Collin Bennet (link) ...
38 views

How to deal with intermittent NA values in a price series when calculating returns

Let's say a have a price series for a share for the year 2000. On the 27th of July 2000, there is a missing value represented by NA. This was not a holiday or any other non trading day as other shares ...
44 views

Local volatility Formula and How To use it

I'm new to Volatility Modelling, so the content of this question may be completely wrong and th question naive. I'm reading "The volatility surface" by Gatheral. I'm trying to get a sense of the first ...
215 views

Why is volatility skew/smile for long term options flatter compare to short term options?

Volatility skew/smile for long term options is flatter compared to short term options, could someone help to explain why is that the case? Thanks