what is the difference between sticky by delta and sticky by strike??

OPTION88 · July 20th, 2010, 11:05 pm

hi bro,what is the difference between these two??In FX maket ,we always use sticky by delta to deal with the options.But in equity market,we just use sticky by strick.If in equity market, we just use sticky by strike....and will there any problem with that ??no matter for greek calculation or hedging???

Quantosaurus · July 21st, 2010, 6:47 am

Different stickyness assumptions result in different prices, greeks and hedging. What exactly do you mean by "will there (be) any problem with that ??"?But maybe you start reading in this great forum first. There are allready threads regarding this issue. good start

OPTION88 · July 21st, 2010, 8:43 am

because I can not figure out what will be the difference if i use sticky by strike in equity market..

Vegawizard · July 21st, 2010, 12:02 pm

My experience is a combination of both "sticky strike" and "sticky Delta" being applied to equity vol curves. My understanding is that Sticky delta seems more appropriate to a regime of symmetrical vol smile (G7 currencies), whereas sticky strike slightly more relevant when vol skew is present. Vol smile corrects for leptokurtosis in the wings, wheras vol skew is for addressing the apparent inverse relationship between market price and implied vol in the equity market

jfuqua · July 21st, 2010, 1:54 pm

Derman article on the questionhttp://www.ederman.com/new/docs/risk-regimes_of_volatility.pdf