In high vol environments, let's say during SPX crash, vol and delts are correlated. When market falls, vol gets bid. When market recovers, vol gets hammered. If you are long a bunch of calls in this environment, you know while your sheets probably say these calls have like a 20d or 10d or 5d, they actually probably have only a 10d or 3d or 0d. What kind of tools or research do you guys use and how do you approach this problem so you are delta hedged as an MM, but not getting screwed cuz your options don't perform to your sheets? Do you just heuristically under hedge? Or are there better tools and approaches? Are you guys looking at any correlation analysis between vol and delt and then hedging accordingly? Do you guys have a vol path and how does that work? Thanks!
OMMs, obviously, use smart models to calculate their deltas. Anything from local vol to SABR or other form of stochastic vol will include spot/vol correlation.