Download PDF Introduction An ATM equity long straddle position is delta neutral. If systematic risk is the only factor predicting expected returns, a delta neutral strategy should have an expected return equal to the risk-free rate. In this article we will review academic literature suggesting that not only is this Read more…
Download as PDF The purpose of this special report is to introduce the emerging class of rough volatility models. Rough volatility is a relatively new concept originating from the empirical observation that log-volatility essentially behaves as a fractional Brownian motion at any reasonable timescale. While rough volatility is found to Read more…
Carry Trades and the Interest Parity Condition The uncovered interest rate parity (UIP) condition states that, under risk neutrality, the gain from borrowing a low interest rate currency and investing in a higher interest rate one will, in equilibrium, be matched by an equally large expected loss by a depreciation Read more…
The famous Black-Scholes model is a mathematical model used for pricing financial derivatives. It is particularly useful because it offers an explicit formula for the value of a European option in terms of time to expiry of the contract T, risk-free interest rate r, strike price of the option K, Read more…
One of the tools traders have found to cope with the shortcomings of the Black and Scholes models has been to allow for non-flat volatilities, which means that the implied volatility of an option does not depend merely on the historical volatility in the underlying, but also on the strike Read more…
Trade idea: take advantage of the low-volatility environment with a butterfly strategy After breaking several all-time highs the US indices are now poised to move higher with less and less volatility. Good news coming from the job market and retail sales is welcome with a sudden decrease in implied volatility Read more…