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risk reversals and vol convexity
Hi,I see in the article:"Things like risk reversals and vol convexity are almost model-independent and thus quite robust risk measures"The risk reversals mean the skew risk and the vol convexity does the volga? If then, why model-independent??
Last edited by wonjun on August 24th, 2010, 10:00 pm, edited 1 time in total.
risk reversals and vol convexity
My guess is the author is talking about RR and Vol convexity are characteristics of vol surface and market traded instruments, therefore model independent. I don't think vol convexity is volga here. It is like strangle traded in the market and it is the measure of vol curve convexity. You need more context to see what exactly it is going on.
risk reversals and vol convexity
without having seen the article I would say it's simply a statement about dVega/dSpot and dVega/dVol. the former tends to be highest for ~20% delta RR; at least for vol and skew levels typical in EQ deriv indices. given the latter is traded e.g. via a symmetrical (skinny-) fly centered around ATM, both do somewhat depend on the model, because of how you shape a smile. 7-parameter models will give a slightly different fit to the "true" smile than 9-parameter models etc.can you post a link to the article?