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How to calibrate a volatility surface using SSVI with market data?

The issue to my problem was a misalignment between the volatility used in my Black Scholes pricing function and the one used for the ATM IV in the SSVI. My BS vol was a decimal (e.g. 0.1345) whereas ...
khubquant's user avatar
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Why do ATM options intuitively have higher Time Value (Extrinsic Value) than Out- and In-The-Money options?

Another way to look at it: The PnL gain from delta hedging is proportional to gamma and always positive. Gamma is highest at the ATM so you have higher PnL gain from the dynamic hedge - and this ...
Arshdeep's user avatar
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1 vote
Accepted

Why do ATM options intuitively have higher Time Value (Extrinsic Value) than Out- and In-The-Money options?

For an OTM option, time value represents the likelihood that the option ends up in-the-money, increasing its value over its current "intrinsic" value of zero. For an ITM option, time value ...
D Stanley's user avatar
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3 votes

Why are Black-Scholes derived greeks used for risk management when alternatives exist?

I do not agree with the answer by @river_rat. SABR greeks (the so-called Bartlett delta and vega) are used by practitioners in Interest Rates trading from my own experience. In general you want your ...
Hasek's user avatar
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1 vote

Why are Black-Scholes derived greeks used for risk management when alternatives exist?

Pick your poison, what is better? A simple model that is wrong or a complicated model that is also wrong. Add to that computation time on large portfolios and the simplicity of a closed form Black-...
river_rat's user avatar
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0 votes

Difference between replicating portfolio and option price

I did not read the paper, but looking at your description and from my understanding, it seems like a straightforward replication of delta hedging the option. For example, if we wish to delta-hedge a ...
KaiSqDist's user avatar
  • 1,102
1 vote
Accepted

If an option is undervalued, how does shorting a portfolio generate profit?

Question 1: Why do we short one call option? Why do we not long a call or short a put? You could do the other combinations, but then you would have to: Short Put > Short Stock Long Call > Short ...
KaiSqDist's user avatar
  • 1,102
2 votes

What are the downsides of using Kim's integral equation (1990) to determine the exercise boundary of an American option?

Note: the most popular approximation in quant libraries I have known is not from Kim (1990) but rather the Whaley approximation. There are several good reasons to prefer numerical PDE solvers over ...
Brian B's user avatar
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