Best vol to input
Posted: September 12th, 2009, 6:24 am
by HBHB
Looking for advice... when delta hedging an asian option in a market where there is no liquid vanilla option markets..(hence no implied vols for reference)..... what is the best vol to use?thanks!
Best vol to input
Posted: November 20th, 2009, 2:37 pm
by AhBa
this is back to stone age. you can input historical and no one will fault you. the point is, you can't hedge out your risk so you can only make assumptions, and you should make the most conservative one.eg, if it's a ccy that is pegged to USD, then use USD vol + conservative adjustment. if it's equity, then it can be historical + spread using a proxy stock with liquid option market + conservative adjustment