<t>Aaron,I agree that in practice, this may not seem like an interesting topic, because you don't know the future volatility and you know it won't be constant. Except that every day, you trade and price by assuming those hypothesis. Moreover, I think that it is the real test to see if one understand...

<t>Sorry Aaron, I was not clear at all in my previous post. Of course, I am not considering the case where I know what the stock will do in the future, because, there, I agree, the vol should be 0.What I am trying to do is to come to a value for the historical volatility over the last 10 days. Suppo...

<t>Thanks Aaron,Suppose I give you the following historical serie :100101,0050167102,020134103,0454534104,0810774105,1271096106,1836547107,2508181108,3287068109,4174284This is the path we were talking about before. The daily logarithmic returns are 1%.The usual way to calculate the volatility would ...

<t>You should have a look at the thread "the thick option trader", launched by Erswhile. He answers your question. And does not agree with you Alan (and I am not talking about normal vs log-normal distribution). So I would really like to see the end of those two threads !!!Basically, if you have dur...

<t>Thanks for your answer erstwhile.I am sorry but I still don't perfectly understand (I am certainly stupid but I prefer to be completely sure than understanding approximately) and I am starting to be very interested about it !I have done the spreadsheet ans still find that you loose money not only...

<t>Thanks for this thread erstwhile. The problem is that there are still some aspects that I don't understand :1) My first problem is about the definition of volatility. You introduce in your answer the STDEV vol and the RMS vol, which are for this path, totally different. Then you say :It is easy t...

<t>erstwhile, I have a couple of questions regarding your model, which I find very interesting :1) First, you use a troncated normal distribution for supply and demand. Is there a "physical" reason for this ? Why don't you simply use a log-normal distribution ?2) From what I have understood in your ...

Thank you Stefanone.Unfortunately, I do not clearly understand italian, even though the titles seemed interesting ! Do you know any other paper in english dealing with the subject in a similar way ?

<t>Sorry for the stock, it was just an example for a negative forward price. But what for interest rates ? I thought that in asia and in france some time ago, forward rates were negative. What happened in that case ? Did the put have a value different from 0 ? If I want to make a bet on the fact tha...

<t>Can it have a value different from 0 ?I suppose that if the forward price of the underlying is negative, then yes (for example, a stock at 1$, with a huge repo and a huge dividend : it surely never happened but it is possible or negative forward rates ; did it happen in the past by the way ?). Bu...

<t>Thanks a lot for your answers !sgelb, I suppose that when you say "one touches also have multi signed vega functions", you mean by that dvega/dspot or dvega/svol ? That is exactly my problem with the one touch. I cannot hedge them correctly with vanillas. And, in my market, you only have access t...

<t>Hi,Suppose that you have to price and hedge a one-touch option (paying one if at any time, the underlying, initially at 100, reaches 80). With a good model, you get a theoritical price which incorporates the smile. But you then need to hedge the vega, the vanna and the vomma. Suppose that you onl...

<t>Thank you very much Rez.I read some of his papers but the main question remains : for trading, can we use a model which is based on utility functions ? I am really not sure about that simple point. It seems more or less a really interesting topic for academics but useless for traders (always the ...

Thank you very much sehrlich !

I don't really know. I suppose that with some stochastic calculus, you may be able to do so but I have not done it yet. And, you can also do it numerically. But this is not that important when interest rates are zero which is the interesting case.