3
votes
0DTE volatility and greeks
You don't. The problem is that when the time horizon is so small, if the options isn't perfectly ATM, the gamma and vega $\approx0$, and delta $\approx1$. A small shift in the underlying further OTM/...
2
votes
Accepted
Why do the Greeks not converge to the strike as the volatility tends to zero?
If you shrink the volatility (let's say more extreme it goes to zero), then the spot price at maturity is simply $S_t e^{r(T-t)}$. There are no uncertainty; the at-maturity spot price becomes somehow ...
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2
votes
implied volatility for close to expiry ATM options vs VIX
This question was asked the day before Thanksgiving ? Then an option that expires in 3-4 days is Friday ? Or Monday ? It doesn’t much matter, the point is that the market doesn’t expect much action ...
- 16.6k
2
votes
implied volatility for close to expiry ATM options vs VIX
Bonus: Dividend yield concerns the underlying, not the option. It is a cost of carry no arbitrage logic that is used to price options and as such you need to take dividends into account.
The VIX index ...
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1
vote
Free Arbitrage conditions in ATM swaption surfaces
See
Johnson, Simon and Nonas, Bereshad, Arbitrage-Free Construction of the Swaption Cube (January 5, 2009). Available at SSRN: https://ssrn.com/abstract=1330869 or http://dx.doi.org/10.2139/ssrn....
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