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.

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