Ronnotel, I am not very mathematical, but I have traded a lot and seen a lot (not all of course). All of what I have seen has shortcomings. What do you mean by robust model. One that is arbitrage free or one that is practical?

<t>I would refer to risk of a spread as the extent to which the long and short leg it is made of represent a good hedge for each other. I am not talking of delta risk. But of gamma and implied vol risk. Consider this: the best protection for a short position in a given strike is to buy it back. Ofte...

<t>People use - cubic spline - never tried it, changing control points around has a bit of a oscillatory effect - unwelcome- SVI model - changing its parameters has counter intuitive results- SABR - fits OK-ish but very nasty to manipulate it seems to me- a spline of second degree polynomial and lin...

<t>What is a good way to assess how risky a certain put or call spread is? For sake of simplicity, let's assume european options.A reasonable way is to look at spread delta. In fact, that measure would correctly indicate that -a wider spread (e.g. 100-130 ps) is riskier than a tighter one (e.g. 100-...

<t>It is a fair comment that close to expiry there would be major issues - because delta would flip around quite a bit as the underlying moves back and forth through the ATM strike, with a delta-based model your volatility in those strikes will continuously shift loads and you will have to pump your...

<t>Hey Skip,When you say that you gave up modeling for the full range of deltas, do you mean that you managed to model most of the range (roughly, from 0.025 to 0.975)? I find it that this delta space view "behaves" in most index products. Maybe stocks structures are distorted due to the discrete ti...

<t>I am looking around for a model that kind of makes sense but also gives enough flexibility to fit market prices. If it is of any relevance, my main consideration would be index volatility. The graphs in the file attached use data from options on the eurostoxx 50 from last december.Plotting implie...

<t>I think that you get less than one partly because you do not have enough strikes, especially on the downside. Look, the value approximation for the density function on the downside goes down to .23 (that is your lowest value on the left of your density function estimate). On the upside, you have ...

Excel, Open Office or nowadays even Google Spreadsheets should do the job quite well. There is quite a lot of example available on the web.

StatTrader, I appreciate your detailed feedback. Thank you.

<t>Northern John, thanks for your enlightening feedback on the art of flow trading. A clarification of my last sentence:A prop shop trades their own money not that of their clients - perhaps I am mistaken, but I don't believe so. I deduce therefore that a prop trader works at a prop shop. Hedge fund...

<t>Thanks for your reply, ER. Seems very informative and useful but wakes the higher levels of my ignorance:- what does a 'flow' trader do? Sounds like a monkey who executes orders, but I am not sure- what does 'no franchise' mean - is it possible to be a prop trader at a hedge fund? Because I thoug...

I think it comes down to that. 5-10 percent. Certainly not more.

That would be the rate in Euros. Equity/index options

<t>Have been trading vanilla options for a few years, coming fresh out of school. And it's screen trading, not floor trading, so I have no contact whatsoever with the competition. Therefore, my view on others and the marketplace in general is pretty limited. I gather I am among the best ones at the ...