17

Rough Volatility Gatheral, Jaisson and Rosenbaum (2018, QF) further popularise a stream of the literature which emphasises the non-smoothness of volatility paths. These models build on a fractional Brownian motion, with Gatheral et al. proposing a Hurst parameter $H<\frac{1}{2}$ and demonstrating the model's ability to match volatility time series. ...


8

Your question comes at this correctly, in my opinion. There is indeed a buyer and a seller behind every option; but the hedging behaviour of the two need not be equivalent... I used to work in an investment bank, and we used to call this (politely) "pin risk", or (less politely) "the gamma hammer". The idea (not perfect, but close enough) ...


7

Rates options Lognormal vs Normal Volatilities and Sensitivities in Practice: this is the best paper on pricing Rates Options in negative rates environment that I have read recently (disclaimer: I don't read many papers, so when I say the "best I read recently" does not necessarily raise the bar very high :). It was published in March 2016, so just ...


3

It's not just a question of buyers vs. sellers, but also of investors vs. market makers. Market makers (market making firms, or banks - for whom this holds doubly due to regulation) are out to earn the bid-ask spread in exchange for providing liquidity, this means their goal is to fill your trade and exit the risk they take by being on the other side of your ...


2

Hedging is more essential for an option seller, because without hedging, their potential loss is unlimited (for a short call) or practically unlimited (for a short put). So, even if the trader is deliberately taking a delta or gamma position, some hedging is likely. On the other hand, an option buyer may have no need to hedge if they are taking a directional ...


2

You shouldn’t only consider the speculative investor. Insurers are a great example. They buy options to hedge risks they have already sold in terms of variable annuities and fixed index annuities, amongst others. Pension plans also can buy options to hedge risks they’ve already promised. In this case, the option is a hedge asset, not a speculative asset. The ...


2

Behavioral Finance I'm cutting it close with McLean and Pontiff (2016, JF) but it's a great read and a personal favorite. Does Academic Research Destroy Stock Return Predictably - funny enough it's gone on to become one of the most cited papers around. I can't wait to check out what's already been shared.


Only top voted, non community-wiki answers of a minimum length are eligible