i dun really see the point of heston for americans.more of a stoch rates than stoch vol issue

<t>why dont u be more specific abt the contract so that there's more info.i will think ur contract involves a emk ccy, e,g. usdidr in ur case. since the gamma is on the spot and spot volatility is lesser than the outright due to volatility of the points, the fair strike comes out lower.i think ps198...

<t>volswaps can trade below atmv, (though it is fairly rare).volswaps have no volga, but it has vega on the wings. Thus a pure local vol model will increase the fairstrike of the volswap (i.e. a volswap priced under dupire should have a higher strike than that under pure heston) - at least that's wh...

cross smile calibration is a big problemthe common approach is to employ a copula (if u know the marginal pdf in eurusd and usdjpy, u can back out eurjpy)but of cos the correlation skew is assumed to be flat.

<t>QuoteOriginally posted by: bakaitHi Could somebody please answer the following questions.1) Why do we have volatility smile/skew in the market.2) As the option maturity increases, the smile curve starts getting flatter. why ??Regards...the main reason for the smile is a jump where u cannot stop l...

well u should use local vols for this given the vega for asians are smaller - putting the pnl on delta is a better hedge than on vol

log returns is the norm.

call up somebody and volunteer to work with the quants/research.there's an enormous difference between academic stuff and real life applications

cross smile calibration is to me the simplest problem which has no satisfactory answer.true we have the copula approaches but i find it lacking.

i hate to suggest this, cos the termstructure of the vol curve can be subjected to different forces of demand/supply, but sigma =f( sqrt(T) ) to be overly simplistic.

<t>QuoteOriginally posted by: nutterfreakyHi,30 Delta put vols are best approximation for pricing variance swaps but for volatility swaps which vols should be used out of the vol matrix( i guess above ATM).Could some one help me hereThankswell ur logic is wrong. i hope u are not trading off these pr...

<t>there are 2 classic products i.e prdc where jap investors were basically selling some long dated usdjpy / audjpy puts due to the steep fwds + vol smilebaskets e.g. Bric given u are in nyc, some brljpy, trljpy might look interesting from a carry perspective or maybe u can do some baskets of new BR...

it looks like u are interested from a trading point of view.why don't u start with Nassim Taleb's Dynamic hedging - if u understand a digital, u will have understood skewand then rebonato's Hedger and the Fox is a good one for a quantitative follow through.

<t>well, the question of "where hkd should be" is not an idyllic question - it is in fact the consideration a market maker has to make on a daily basis making prices in hkd digitals etc. if u look at the market prices for such digitals at the peg, u get a fair feeling of the "un-peg" fair value for ...

<t>QuoteOriginally posted by: OrbitQuoteOriginally posted by: woohoowell, ask the market dude.ask for the prices of 1y usdhkd digital puts.I'm pretty sure you are unaware of the currency pegthen i am pretty sure u are not even a practitioner.a trader who trades the digital is going to gauge where he...