<t>Wouldn't this be the case only if JPY interbank swaps were collateralised in USD?The need for "global solving" exists but in practice I only know of the following cases, and most of them involve only 2 curves:- USD, if you put OIS/3M swaps on the long end of the OIS curve- any currency on which i...

<t>hi flairplay,thx for the clear summary - and a few questions :- assuming the 10 RR & SP are quoted on the market, how do you shift them when computing Rega & Sega ? eg assuming Rega is the MV change for a 0.1 shift of the 25RR, by how much would you shift the 10RR ? is, say, 0.25 reasonab...

<t>Hi DinnerEven under basic BS assumptions the ".5*vol^2*S^2 factor" (coming straight form the BS PDE) only holds if you are reasonably delta- and rho-hedged - which would probably be the case.Now by looking at "modified decay" and "market gamma" (assuming that you're still using BS, but with term-...

<t>The only reason why variance swaps remain popular despite their "counter-intuitiveness" (variance is not intuitive to traders as opposed to volatility so you may think that only vol swaps would be traded), is that they can be statically replicated by a strip of vanillas as shown in the paper you ...

<t>In academia there is no such thing as a "profitable trading strategy" ...In real life - this depends on the risk profile of the individual running the strategy. You should be able to work out (roughly) the expected return & variance of your strategy, and then from this work out the probabilit...

<t>Well yes with any polynomial method you have a border effect in that the whole curve moves when a single point is shifted. This is not too bad though.But more important is that the distribution implied from the vol surface depends on the 2nd derivative of the option price with respect to the stri...

Well you already answered your question in your 1st post ... The loss on the options if the underlying price goes up by 1, is 0.6*2,000 = 1,200.And until the options mature (assuming they're european options) your loss is unrealised, you don't have to pay anything yet, only at expiry.

Be very careful with geometric interpolation methods (such as cubic spline) : they tend to generate weird implied distributions. Be careful also about what happens at the wings.

<t>I think you got that : the value of a call option increases as the value of the underlying increases. Then :- if you have BOUGHT the call (i.e. you are LONG the call), you make money as the value of the underlying increases.- if you have SOLD the option (i.e. you are ... the call) you ... money a...

Hi,I know that they can plug smile models for FX exotics on demand, at least we're currently testing a DVega kind of model on our desk, which wasn't in the original stuff... It seems there are also working on a Heston and an hybrid model, but I didn't have a chance to look at it yet !!TChuss

<r>HiI’m currently trying to implement a replication barrier pricing model based on Wystup article <URL url="http://www.wystup.com/papers/OT_derivativesweek.pdf">http://www.wystup.com/papers/OT_derivativesweek.pdf</URL>. This method is commonly used on the FX market, but still, I’m facing some diffi...