Which volatility to use?

Discussion in 'Options' started by longthewings, Jan 25, 2015.

  1. #11     Jan 26, 2015
  2. spec77

    spec77

    if you have a model for calculating the delta bounds for an option, how do you calc the delta bounds for a multi-leg position ? just adding the bounds of each legs ?
     
    #12     Jan 26, 2015
  3. xandman

    xandman

    Yes. All greeks are additive, thankfully.

    Unfortunately, the only way you will spot modality, as in a wrangle spread, is either graphically or a table/slide.
     
    #13     Jan 26, 2015
  4. spec77

    spec77

    does the additivity apply to delta bands, e.g. Zakamouline ?
     
    #14     Jan 26, 2015
  5. I think you have to be careful with vega. At least adjust by root-time (if trading calendars), then add.
     
    #15     Jan 26, 2015
  6. xandman

    xandman

    @spec77 . Sorry. Formulas and derivations are currently out of my depth. My concept of delta band is my max delta exposure based on elementary (% capital/portfolio at risk) ideas.

    @longthewings Thanks for the reminder. Vega risk is different across the term structure.
     
    #16     Jan 26, 2015
  7. xandman

    xandman

    Last edited: Jan 27, 2015
    #17     Jan 27, 2015
  8. One measure of the relative volatility of a particular stock to the market is its beta. A beta approximates the overall volatility of a security's returns against the returns of a relevant benchmark (usually the S&P 500 is used). For example, a stock with a beta value of 1.1 has historically moved 110% for every 100% move in the benchmark, based on price level. Conversely, a stock with a beta of .9 has historically moved 90% for every 100% move in the underlying index.
     
    #18     Jan 31, 2015
  9. Thanks for the interesting article. Using the term Actual Volatility in the article is also interesting too!
     
    #19     Mar 12, 2016