The Fact About pnl That No One Is Suggesting
The Fact About pnl That No One Is Suggesting
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Which relies on the rebalancing frequency. But "envisioned P&L" refers to a median more than all feasible cost paths. So You can find not automatically a contradiction right here. $endgroup$
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BongoBobBongoBob 2111 silver badge44 bronze badges $endgroup$ 1 $begingroup$ that may be much too prolonged for any parametric method to estimate pnl. won't be able to you reprice your cds with present-day curiosity level curve and cds spreads? $endgroup$
How is this legitimate however? Delta-hedging frequency features a immediate effect on your PnL, and not merely the smoothness of it.
$begingroup$ Undecided that is a legitimate dilemma! Gamma p/l is by definition the p/l due to realized volatility staying different from implied.
one $begingroup$ @KaiSqDist: that might be A further query. The approximation here is relevant to the understood volatility. $endgroup$
InnocentRInnocentR 72211 gold badge66 silver badges1818 bronze badges $endgroup$ 1 $begingroup$ For those who had been to delta hedge repeatedly and on more info a costless basis, then your payoff at expiry would match that of the vanilla possibility.
What are economical numerical procedures for fixing coupled Sylvester-like equations? more hot inquiries
At the end of the working day, the EV/Avg(PNL) boils down to iv vs rv of inventory. If those two are equivalent, then the EV/PNL would be the exact same for both of those traders irrespective of hedging frequency. The only variance will be the variance in their PNL as explained previously mentioned.
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The above big difference I fairly see as follows: once we re-commit/re-borrow at $t_1$ to generate equally approaches concur we make the "do the job circumstance" self-financing. In contrast, your company opts to Enable intermediate gains/losses fall out. There may very well be motives for this. Probably it really is a method to calculate taxes? I do not know. $endgroup$
Matt B.Matt B. 22111 silver badge22 bronze badges $endgroup$ five $begingroup$ Thanks Matt for your reply. Are you aware of usually the number of these kinds of devices are evaluated regularly with regular financial investment financial institution. $endgroup$
$begingroup$ Fairly Obviously the two PnLs will not essentially coincide. In the "faculty case" You do not contact the portfolio at $t_1=t+delta t$ and liquidate it only at $t_2=t+twodelta t,.