<t>Guess we have two different aspects being discussed here:1. Flairplay, agree with you, Put Call Parity (PCP) holds for a GIVEN strike whether Put or Call, whether Vol smile/skew or Black Scholes (BS) world (flat vol curve).2. Johnself11 brings another point - given that we have say 25d Call and 2...

<t>A delayed reply but few quick thoughts:Since FX options are options on "FX" Forward Rates, Implied Correlation from FX Options prices should be correlations between "FX Fwds Rates" (and not spot) as priced in by the FX Options market. E.g "Implied" Correlation between Forward Rate of EUR/USD and ...

That appears to be a pretty general question on vol (gamma/vega) trading and how an option book is run - could you please specify what exactly would you want to know. Cheers,Optron

<t>I believe you are right - there is may not be any closed form solution to the problem of getting delta or vol for any strike wherein vol depends on the delta of the option along the Vol Smile, while the delta depends on the vol being used to calculate the delta - chicken/egg story - generally an ...

<t>Will take your example - so for EUR/USD and USD/INR, for which IVs are available in the corresponding market, the IVs for EUR/INR can be derived by pricing in the correlation between the spots (forwards to be precise) while treating this as a two-asset portfolio.Of course, the key is to plug in t...

Well that was really a quick reply - ok - u can have a look at "What is the volatility smile?" under FAQ forum.

Yes

Dividend yield - rho2 (if u like) or PhiBorrow fee - cost of funding? interest rate? Rho !!

Not really great, but I believe that is the best you have around.

Forward Vol FV(t1, t2) = SQRT ( [ Sigma2 ^ 2 * t2 - Sigma1 ^ 2 * t1 ] / (t2 - t1) )0 < t1 < t2Sigma2 = vol corresponding to maturity t = t2

<t>For dates in between and for strikes (read Delta) in between, you can interpolate the vol smile curve and the vol term structure respectively - linear or some other technique.Yes, you can derive Forward vols from the vol term structure (like forward rates from term structure of interest rates). <...

You can get historical Implied Vols (ATMF and RR/Fly) for EUR/USD and work out the prices.Refer to another thread on "FX Option Historical Data".

<t>Wondering what kind of underlying markets will have derivatives allowed on them, but, in which one can't even hedge the delta. Interesting!Typically the severity of gamma would depend on the spread/width of the call spread also (with a digital option being an extreme case). One way out could be t...

<t>Yes why not. After all, a cap is a portfolio of call options on LIBOR. If you have N Eurpean vanilla options with say EACH of USD 1, then delta of each option would be less than mod(1). However, 0 <= total delta of N Options <= USD mod(N), and thus delta of a cap can be more than USD 1.mod - modu...

You can download the Implied Vol data through any Data Feed System - Reuters/Bloomberg.Attached is sample close values of historical data of 1-month EUR/USD Implied Vols obtained from Reuters.