<t>Quote[1] Too expensive to execute, delta hedge, roll the strikes etc ....doesn't work unless extracting 0.25 vol points after 3 months of intense trading is your cup of tea.ok i assume we are talking about doing this with either puts or calls. [1] can actually be a little bit less intense since y...

<t>i would be interested in people's opinions on the following dispersion vega hedging techniques...specifically, who has which preference and why. what are each pitfalls? or if anybody has another method?1) dollar vega equal - total dollar vega of index equals exact dollar vega of the sum of all co...

thank you - very helpful indeed.

why not use PCA to determine the best proxy basket for dispersion? this might be painfully obvious to some of you so please enlighten me, thx, t

<t>take 1,000 times faster than a laptop, then take 1,000 of those computers (big bens or whatever else) - you still need 8 years to solve it. you probably figured out that this is a simplified version of the actual problem (which i am sure you would be able to solve). i am not really in the busines...

thx - very helpful. you can also assume that if you do this further away from the cpu (i.e. matlab etc) that the time is even slower.if you assume 1 second per 10 billion - this problem would take you about 8 million years to compute.

how long would it take a "normal" PC (1GB RAM and 2.5 GHz) to run 2.5 *10^24 (2,500,000,000,000,000,000,000,000) simple multiplications, each multiplying two 4-digit numbers?thanks for your help.t

how easy (and quick) is it to run a mult-variate regression with one dependent and 100 independents? where can this be done (matlab?)thankst

<t>petitjean i right - many, many combinations... problem with the covariance solution is that you can never be guaranteed that the highest covariance terms aren't correlated with each other. it might well be (and usually is the case) that the first few terms are in fact correlated with each other, ...

<t>buylo-the answer to your question is entirely time series dependent. if realized is indeed lower than implied - you will make money on a continuous rehedge (ignoring your almost zero transaction costs). you can only go as far as to say "what would have been the optimal rehedging strategy with thi...

<t>in other words you are counting on the realized vol being higher than the implieds if you are long gamma and vice-versa... the key is to decide when (and how frequently) to rehedge your deltas.... really depends on the time series. b-s assumes continuous rehedging and works best for atm's. having...

<t>this is a question for traders or quants:what is the underlying assumption behind creating a proxy basket to replicate the index which is vega weighted proportionate to the constituents' weights rather than notional-weighted? also, it seems to me that by including more of the larger weights in yo...

you can only extract it if both of the stocks are the only components of an index and you have options on that index. otherwise, you have one too many unknowns.

<t>you really don't care about correlation of volatilities. both volatilities might be high but in terms of price movements could be always cancelling each other out. correlation of volatilties only become important when you deal with options on those markets. but i am assuming that that's not the c...

thank you - this is helpful