This is not about conservatism or historical vs risk neutral battle. This is about FV which is defined clearly as what you receive if close position. You close it with ask CDS (big Z-spread) or bid loan.

wrong way risk -often, yes, right way I suppose no, but it can be supportive to do a trade if it is arguable. Taking right way release is a bit aggressive, because monetization is difficult. The ways to calculate are non-zero correlation between factors and addons.

Why don’t calculate vega with perturbation IVs (that is recalibrate model)? This is just sensetivity to quotes with which you hedge a position or at least understand these quotes dynamics and then p&l. This is not exact vega in true sense of greeks but I don’t see much sense in calculation greek...

If the market quotes in IVs then it is ok to calculate sensetivity to these. BS and LV will give the same vega for vanilla instrument with which you hedge (if your LV gets into calibration instruments of course). Then what you are doing is well accepted market practise. As for unexpectet sensetiviti...

Local vol and stoch vol give different smile dynamics. Depending on how sensitive the product that you are pricing / hedging is to future smile dynamics you choose for local or stoch vol. Better yet, combine the two models so that 1. ) your vanilla prices match market prices for all tenors and stri...

Dear forum,

Sometimes for pricing derivatives we use deterministic vol (e.g. Local Vol) and sometimes stochastic vol (e.g. Heston). For which products stochastic vol is much more preferable? 

Seems that you are talking about RUONIA ). I saw a data Vendor glues it with MOSPRIME, but it is a question what is used for hedging illiquid long end. As it was said XCCY may also help to do the stuff.

Barrier options may generate substantial delta gap risk near the barrier. There a method called “shadow barrier”, when you move a barrier slightly and pretend that the option has new “shadow” barrier. Then the delta isn’t that big near the barrier as for the original barrier (if you moved the barrie...