well what it tells you on the downside is that if you are going to lose money, you better do so with as large as possible a deviation (whether SD or semi) to get the smallest negative risk adjusted ratio. I am not so sure how helpful this observation is.

<t>depending on the serial correlation characteristics of the strategy your sortino and sharpe ratios calculated on a daily basis can also differ somewhat from those calculated on a monthly basis. for a lot of highly profitable strategies, using daily pnls often overstates the noise somewhat as a la...

<t>that is the whole point of being short gamma -- it forces you to "buy high sell low" and therefore lose money on your delta hedging efforts. in turn you receive decay. being long gamma, you will always hedge by buying low and sellling high, and therefore realise positive pnl from your hedging, bu...

<t>yep you got that right, answering those two question should be the key...yes, to get yearly theta multiply daily theta by 365. BUT, one potential problem with that is that most good option systems will not output the pure BS-theta (which is not necessarily a very useful number), they will output ...

<t>correct, the Fed increased the discount rate by 25bps. this is NOT the same as the Fed funds rate. look up wikipedia for fed funds to learn about the difference.given that there is now only a very small amount of discount window borrowing outstanding by banks (c15bn or so) this action was a purel...

<t>ok well the way i would look at this is...on the general idea behind this fair value alpha, know it for what it is: simply a comparison between realised n implied vols, nothing else. So yes, of course it depends hugely on your measurement of realised vols.On your calcs... it all comes back to sca...

<r>Well the Taleb formula follows straight from the basic definitions of gamma n theta that can be found in any book or here <URL url="http://en.wikipedia.org/wiki/Greeks_%28finance%29">http://en.wikipedia.org/wiki/Greeks_(finance)</URL> for example. if you set r = q = 0 and stare at it for long eno...

<r>imo the two issues the market is focusing on re. the swap that make it different from standard government cross currency swap transactions were:- off-market FX rates used for calculating notionals, resulting in outright upfront credit extended to Greece by GS (mentioned in risk magazine article c...

<t>well if anything the 1/sqrt(N) and 1/(N) rules agree entirely with your argument dont they -- as saying that both kurt n sk go to zero in the limit of large N (ie the central limit theorem) ... the secondary question is how fast do they go to zero and are these laws correct.the further question i...

<t>if you allow the definition of theta to include change in option value due to its vol sliding along the term structure (as most practioners would), then in the presence of a strongly inverted term structure (high short term vols low long term vols, and with steeper slope at the front than back......

<t>thanks, that is interesting.presumably your daily simulated T returns were iid ....i think that is where the problem lies when moving to actual market returns.silenoz, i now get you i think, and agree for N dist sub-period returns the aggregate over any scaling period should have zero kurtosis. b...

<t>sure, but I dont think that is quite what i am saying.just taking back to vol as an example:you can measure vol using daily returns over the last month or daily returns over the last year and assuming the process has constant vol there will be no systematic bias between the two results (yet there...

<t>i have pondered that question a lot but not come up with any satisfactory answers.If you assume a stoch vol model, you can derive the term structure of skewness and kurtosis as a function of the sv parameters (see Daas-Sandaram paper), but it is not a nice easy function.i think the problem comes ...

<t>i was thinking GDP -6% (chg in value of goods in the economy... not incl the foreign borrowings)Nominal interest rate 5% (for every 100 sheep we get 5 more each year)Inflation -3% (change in overall money supply)So real interest rate 8%...but would love to see someone who really knows what they a...

<t>on the original question,isn't it fair to say that even in a zero sum world, if we assume that all buyers and sellers of options are either speculators (risk averse when trading either way) or hedgers (not risk averse), then if the proportion of speculators among option sellers is greater than th...