Are you trying to hedge the cross-gamma in a model with dynamic (= stochastic) correlation?In this case I don't think you can do that without dynamically trading another option, which would be too expensive to executeWhat is your ultimate purpose?SB

<t>QuoteOriginally posted by: osirisHi all,Hoping someone can help me out with this one....Lets say I have an ex-ante prediction of realized volatility on an underlying security (say an equity for example) which is different to that of the BS Imp Vol of some respective option (say a call option) on ...

<t>QuoteOriginally posted by: CstudentThanks for your reply. I actually want to know enough (but not far too much) to get a job. I am currently reading Hull's Book. Is the knowledge about stochastic caculus in Hull's book sufficient to get a job. If not, what else should I read. Thanks again.it pret...

<t>it depends how advanced you are1- For a good introduction, you have Hull's OFOD, Wilmott's PWIQF, or for something lighter you can have a look at my textbook Finance & Derivatives: Theory & Practice2- For an advanced textbook, you have Steven Shreve's Stochastic Calculus I & IIhope th...

<t>I only had a copy of his conference slides (2004) - I do not know that his ideas have been formalised in an academic paper, but I believe he's still at ML so you could try your luck directlyAlternatively you might get a copy of the conference proceedings through ICBII really like Duanmu's approac...

you can buy correlation swaps - usually 5-10pts cheaper than dispersionSB

Hull is very good but has become a little profuse over timePWIQF is very accessiblemay I also suggest "Finance & Derivatives: Theory & Practice" (Wiley)SB

Thanks for your interest. I am finalising an updated report at the moment. I will present the results (including new findings with parameter estimates) at Derman's Financial Engineering Practitioners Seminar at Columbia (Feb 26)SB

<t>I am not sure where you get this theoretical weight of 1.10E-5If you discretize the integral with, say, dt = 1%, you get a number of 50% puts equal ton(50%) = Nvar x (1/0.5^2) x 1% = 1388 x 1/0.25 x 1% = 55.5and so on for the 51%, 52%... strikesNote that Derman proposes a different hedging proced...

<t>1/ convention is to use vol/var POINTS, not %e.g. for a vega notional of 50,000 EUR per vol point (meaning: payoff is aprrox 50,000 EUR for each point of realized volatility above the strike)Nvar = variance notional = 50,000/ (2 * 18) = 1,388 EUR/var point2/ For an option, EUR payment amount = %N...

<t>1) Vega notional is expressed in EUR/vol point. However it is given for indicative purposes: the true notional is in EUR/var point with the conventionVariance notional = Vega Notional / (2 x Strike)where Strike = Kvol x 100 = sqrt(Kvar) x 100 in your notationsIt is conceptually the same as Vega a...

<t>Shameless blurb: one way to look at this type of problem is illustrated in Chapter 3, Problem 2 of this book"The short-term zero-rate curve in the euro zone has the following shape:Maturity 1 day 1 week 2 weeks 1 month 2 monthsZero-rate 2.78% 2.77% 2.75% 2.92% 3.08%The reference rate of the Europ...

look at the following link: http://finmath.uchicago.edu/new/msfm/ev ... go2006.pdf

<t>I published a report on that subject in June ("Arbitrage pricing of equity index correlation swaps", JPMorgan Equity Derivatives report)If you have trouble getting a copy from JP I can send you a paper version (PM me with your mail address)I will also present the main results at the 2006 ICBI Glo...

Apologies for the late replyI would be surprised if the paper was removed from the website. I am sure my co-authors can provide you with a copy.Rgds,SB