It's also possible to analyse the skewness and kurtosis of the period PnL by using 3rd and 4th times of $Y_t$ respectively. Presumably you'll conclude that for 2 collection with identical expectation and variance, you are going to prefer the one particular with beneficial skew or reduce kurtosis, but maybe not dependant upon the self esteem of the marketplace see, etc..
$begingroup$ The pnl calculation is completed in two ways. By definition, you value your portfolio as of these days, you value your portfolio as of yesterday, and the difference will likely be your pnl.
Or does it really not issue? I necessarily mean each can return unique values so I must request which benefit is more precise. $endgroup$
BongoBobBongoBob 2111 silver badge44 bronze badges $endgroup$ one $begingroup$ that may be much too extended for just a parametric strategy to estimate pnl. can't you reprice your cds with present-day curiosity rate curve and cds spreads? $endgroup$
In this case, after we evaluate vol in scaled-down 30 min increments, we are able to see it truly is appreciably unique than vol calculated on near to close costs. Each traders buy the straddle with a one vol to illustrate, who do you're thinking that can be greater off? The person who hedges various periods every day or the person who hedges once at the conclusion of the day? In such a case, the stock isn't performing at some regular vol in the least times in time more than the period in the life of the option and throughout day after day, as a substitute we will see the intraday vol read more is significantly unique the daily near to close vol.
$begingroup$ It's in truth. It's Particularly exciting inside of a portfolio in which you could be hedging some challenges and keeping Other individuals. $endgroup$
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And this depends upon the rebalancing frequency. But "expected P&L" refers to a mean over all possible price paths. So there is not essentially a contradiction in this article. $endgroup$
The 2nd expression is due to your adjust in curiosity rate. $varepsilon$ is solely what You cannot clarify. If everything is neat, your $varepsilon$ should not be too high. It's also possible to see that this is extremely near a Taylor expansion when anything is linear, which is why You can utilize your length as an approximation with the 2nd phrase.
As it is the pnl of your hedge that offsets the option quality. Be sure to dismiss dissimilarities due to periodic vs continuous for this query. $endgroup$
– equanimity Commented Oct 7, 2021 at one:07 $begingroup$ The purchase matters just for the cumulatuve brute-force P&L. The order would not make any difference for unbiased brute-power P&L or for danger-theoretical P&L (Taylor sereis approximation from the P&L employing deltas - 1st order and gammas and cross-gammas - second get chance measures). I feel you're inquiring about RTPL? $endgroup$
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The implied volatility surface and the choice Greeks - to what extent is the knowledge contained within their every day movements precisely the same? four
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