<t>Let v = sigma * S^eta, where eta = beta-1, then dv = (2*eta*mu - (eta-2*eta^2)*v)*v dt + 2 * eta * v^{3/2} dW. Thus any CEV model is a special case of the Lewis 3/2 stochastic volatility with correlation being 1 or -1 depending on the sign of eta. If I remember correctly, the solution for the 3/2...

<r>I wish all quantitative finance related papers were this easy to read.<URL url="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970480&high=%20taleb"><LINK_TEXT text="http://papers.ssrn.com/sol3/papers.cfm? ... h=%20taleb">http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970480&high=...

<t>The put-call parity is based on a simple arbitrage argument. If you cannot trade the underlying asset, then the put-call parity does not have to hold. Real life example: when a stock becomes hard to borrow, puts and a lot more expensive relative to calls. Because you cannot sell puts, buy calls, ...

<t>QuoteHas anybody got any intuition why for example an out-of-the-money call could be more expensive than an out-of-the-money put? I am looking for an economic rationale!How about supply and demand. If option market makers as a group short the upper strikes and long the lower strikes, then the usu...

<t>Yes, dealer hedging long gamma positions can depress realized volatility. In the standard option theory, the volatility process is exogenously specified, whether constant or stochastic, ie, there are no feedback effects. However, feedback effects do exist in real life, when the (hedging volume)/(...

Articles in the journal "Quantitative Finance" are mostly written in physicists' style.

<r>Antonio: Your zip file seems to be corrupt.PiotrW: Your question can be paraphrased into "how to go from the physical measure to the pricing measure" or "how to derive an explicit expression for the market-price-of-risk lambda"I know two places where this question is addressed.1. The book by Alan...

QuoteOriginally posted by: flairplayonce you know the control you should be able to come up with a static hedge involving only Europeans.I doubt this statement is true, see the paper "On the equivalence of the static and dynamic asset allocation problems" by KOHN and PAPAZOGLU.

<t>I agree with Pasargad, it is mainly caused by supply and demand. Market makers as a group tend to short the lower strikes and long the upper strikes. This view is also advocated by Garleanu, Pedersen and Poteshman in "Demand based option pricing", as well as by Yang in "Quantitative Strategies fo...

The Kelly criterion is quite risky in terms of drawdown risks. Fractional Kelly is very reasonable. The drawdown risk issue is discussed in Section 2.4 (freely available) of the new book Quantitavtive Strategies for Derivatives Trading.

<t>In Black-Scholes like complete markets, the delta hedging argument moves you from the real-world measure into risk neutral measure. However the Heston model is incomplete, there is no unique way to go from the real-world measure to the rsik neutral one. So most people "cheat" by declaring that th...

The site "www.atmif.com/qsdt" contains some new ideas on utility function based derivatives trading strategies, which might be helpful to you.

QuoteOriginally posted by: nazzdackI have yet to meet a trader who prided himself on picking stocks that would stay flat or rise modestly.I think this misses the point. Covered calls are not for traders, they are for NON-traders, ie, the buy-and-hold type.

I agree it is a lame strategy if you are a market timer. However, a lot of people are long term buy-and-hold type (does not matter what the market does), in this case they lose little by doing buy-writing unless the market goes up like a rocket.

<t>A lot of people do covered call writing for high dividend stocks. They get the dividend yield and the call premium. If the stock is in the money, they roll their position, ie, they buy back the front month in-the-money call and sell back month out or at the money calls. These stock tend to be sta...