Tend to be the calculations suitable? I assumed the netPnl should be usually a similar - whatever the valuation form
WillWill 13344 bronze badges $endgroup$ four $begingroup$ Did you not say originally that $V$ is self-funding? In that case there is not any Charge to finance it plus the PnL is usually just $V_T-V_t$ in between any two time details. $endgroup$
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Two traders have bought a one hundred strike ATM straddle (extensive gamma) that expires in per week on stock XYZ. The stock rate is 100. They're equally in the beginning delta neutral. During expiry, Trader A delta-hedges just about every minute, and trader B hedges every single close of day at current market close.
Be aware this depends upon the area regulation, as a result the same placement can potentially have unique Thoroughly clean P&L if booked in textbooks which are matter to distinctive regulators. Thoroughly clean P&L is useful for backtesting VaR designs for regulatory funds.
$begingroup$ Why does Gamma Pnl have publicity to realised volatility, but Vega Pnl only has publicity to implied volatility? I'm confused as to why gamma pnl is affected (a lot more) by IV and why vega pnl isnt impacted (additional) by RV?
Kurt G.Kurt G. two,38944 silver badges1717 bronze badges $endgroup$ three $begingroup$ Thanks a good deal for taking the time to answer. As a result of your last equality I know that the "faculty circumstance" pnl can take into consideration the efficiency from the money expense of the financial gain made along just how, which is $PnL_1rdelta t$.
– Will Commented Nov 24, 2024 at 22:15 $begingroup$ I am not an accountant but I believe that these queries have far more to do with conventions and getting constant to have the ability to tell if, say, final yr's PnL was greater or worse than this 12 months's. There is most likely no scientific way to derive a "suitable" method.
$begingroup$ In Black Scholes framework, assuming zero curiosity click here premiums and understood volatility to be same as implied volatility, gamma pnl is exactly exact same and opposite of theta pnl.
$begingroup$ The information I have found about delta hedging frequency and (gamma) PnL on this site and various Other individuals all reiterate the identical factor: which the frequency at which you delta-hedge only has an impact on the smoothness and variance of your respective PnL.
I discovered a serious blunder within a paper penned by my professor's earlier scholar. To whom ought to I report my results?
As it's the pnl on the hedge that offsets the option quality. You should dismiss distinctions because of periodic vs constant for this concern. $endgroup$
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