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1 vote

Why would you take a Loan when trying to Illustrate a Riskless Hedge?

I don't really have much to add to the other comments, but I just want to emphasize the general principle of opportunity cost and the intuition behind it. You should only invest in something if you ...
LongTimeLurker's user avatar
1 vote

Skewness Equivalent to Additivity of Variance

$Y=log(S2/S1)=X2-X1$. $E(Y+X1)^3=skew(Y)+k1=k2$, so $skew(Y)=k2-k1.$ If we assume same skew for all $log (S_k/S_{k-1})$ then skew grows linearly with time, just as variance. If you can describe what ...
Arshdeep's user avatar
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0 votes

Expected daily range (SPX) and daily realized range

Try using historical volatility (calculated with the Garman-Klass-Yang-Zhang formula) and implied volatility. Calculate a trailing 7-day average of historical volatility and combine with current ATM ...
BigMistake's user avatar
1 vote
Accepted

Why would you take a Loan when trying to Illustrate a Riskless Hedge?

More generally, in finance almost all replication arguments always assume that you have no cash to begin with (usually also there are simplifications such as assuming that there is no credit risk and ...
user68819's user avatar
  • 495
0 votes

Negative Dupire Variance

What data are you using? Local volatility requires an arbitrage-free implied volatility surface. In general, equities rarely satisfy these conditions on their options because their bid-ask spreads are ...
THATS MY QUANT MY QUANTITATIVE's user avatar
1 vote

Value of Call Option as Volatility goes to Infinity

Just adding another perspective. You have 2 calls at strikes K1 and K2. As vol becomes infinity, the mass between K1 and K2 goes to 0 as the z-scores of K1 and K2 become close to each other. Since ...
Arshdeep's user avatar
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1 vote

How to calculate overnight implied volatility?

Implied volatilities by definition is sqrt integrated variance till expiry. There is no way to tell any particular section of time apart. You can make historical estimates that’s it. Sometimes if ...
volquant's user avatar
1 vote
Accepted

How to calculate overnight implied volatility?

The implied variance you infer at time $t$ for an option with expiry $T$ is the integral of the instantaneous variances: $$(T-t)\hat\sigma^2(t,T) = \int_t^T\sigma_u^2 du$$ so your request is a bit ...
foreignvol's user avatar
3 votes

How to calculate overnight implied volatility?

The limit you created is misleading because: $lim_{t→∞}σ_{daily}$ is defined w.r.t a sequence of values and is not the same as $σ_{daily}$, which is a single value and NOT 0 in a squeezed time ...
Arshdeep's user avatar
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0 votes

Describing the volatility skew with a set of options

Answering my question for anyone's interest in this topic. I took indirect inspiration from this post: How does an option's time value depend on moneyness? On whether to include (perhaps more so ...
KaiSqDist's user avatar
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