<t>That's a thought - a term structure of int rates wont work within this approach, like you say. However, what if we simply just use finer time-stepping in regions where the vol (or exercise boundary) is changing rapidly, as would be the case close to expiry. That would slow down the calc a bit, bu...

falsifiability is all fine, but I don't even have any evidence that anyone knows what I am talking about in the first place

Apparently, no one has tried this..

ok, must admit that I was a *little* confused... the explanation is that the quality of the hedge with finite number of options degrades over time, and shows up as the difference between the theo value and the calced value.

<t>Has anyone looked at the Carr-Jarrow-Myneni approximation for pricing American options, but with a term structure of vol ? Specifically, if one were to parameterize the early exercise boundary using a piecewise exponential approximation (a la Ju), how good an approximation is it in practice? (esp...

<t>umm, I'm a bit lost now. I *think* what probably said is that one needs to continuously delta hedge the option strip *and* go long a const $2 delta position (with delta = 2/S). Otherwise I don't see how the cash position generated by the continuous delta hedging of the option strip can be offset ...

<t>Thanks. I should have been clearer in my question.... so here it is again:I would imagine that the theta of the portfolio of options (with weights fixed at the start of the varswap trade) should not match this varswap theta as one goes through the life of the trade, but what is the difference att...

<t>The varswap topic has been beaten to death, but i did not see this particular topic discussed in the sd papers or on wilmott.com. I'm unsure how theta is calculated for varswaps. I'm looking at a hedge simulation, and the usual theoretical value of theta = -implied_vol^2/T doesn't seem to match t...

ok, fair enuf. well, in this case wsj wasn't that far off - the jpmorgan buyout of non-Americas Sempra business was announced yesterday.

explain yourself.

Brother - WSJ. Kack - do you really? there's plenty going around, just grab one.

JPM buyout of Sempra UK will b announced soon (this week?). I was told that Sempra has a large global oil business - is this part of the UK or US(NA) Sempra?

<t>I understand (and totally agree) with your statements regarding the number of factors. My question was more like "how does a "good" spread model compare with say a bivariate copula model (with appropriately calibrated correlation) in a hedge analysis"... maybe I have to do my own analysis, but I ...

<t>Just so that we are on the same page, I am not arguing in favor of a simplistic model - remember, I am just asking a question and trying to understand the answers! (btw, Kirk is useless).For European options I'd imagine "dynamics" to mattter only insofar as it affects the skew-adjusted deltas. Bu...

Thanks - I guess you are referrring to smile-adjusted delta (partial_V/partial_F + vega * partial_vol/partial_fwd) versus unadjusted delta? That is very model dependent, and I suspect that will definitely change hedging ability.