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3 votes

Vega hedge of a barrier option

Too long for a comment. I find Bergomi's sentence vague, so here follows an equally imprecise attempt at an answer. A claim that can be statically replicated in a model-free manner is in fact immune ...
Frido's user avatar
  • 1,739
2 votes

Gamma and Theta of a swaption

In the normal model framework $\Theta=-\Gamma\sigma^2/2$ is indeed a good theoretical rule-of-thumb. However, you're ignoring the impact of the roll-down of your underlying 1y1y fwd swap in this theta ...
user35980's user avatar
  • 1,231
1 vote

Delta-Gamma neutral vs Delta-Vega neutral

For a flat IV skew (not surface), the gamma neutral portfolio == the vega neutral portfolio. This is because Vega = s^2 * σ * T * gamma, so when the net gamma exposure is 0, the net vega exposure is 0,...
Newquant's user avatar
  • 749

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