Seminar series
Date
Thu, 14 Feb 2013
Time
13:00 -
14:00
Location
DH 1st floor SR
Speaker
Marek Musiela
Organisation
Mathematics (Oxford)
The second order sensitivity of a trading position, the so
called gamma, has a very real and intuitive meaning to the traders.
People think that convex payoffs must generate convex prices. Being long
or short of gamma is a strategy used to balance risks in options books.
While the simples models, like Black Scholes, are consistent with this
intuition other popular models used in the industry are not. I will give
examples of simple and popular models which do not always convert a
convex payoff into a convex price. I will also give the necessary and
sufficient conditions under which the convexity is propagated.