Exotic Derivatives Trading

June 12, 2009

Worst of up and out put – Vega Risk and Correlation skew

Filed under: Risk Management of Exotic Derivatives — Exotics Trader @ 6:34 am

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1 Comment »

  1. I have a question regarding barrier options and more specifically no-touch barriers. I have little to no experience with barriers however have a novice understanding of vanilla equity options. From my understanding, a double no touch cannot be priced or is not synthetically equivalent to a strangle. Whereas the strangle is short gamma, short vega, short theta, delta neutral. The double no touch would be short vega(?), gamma neutral, short theta, and delta neutral if strike/barrier placement is symetric? However gamma would explode as the underlying approaches the strike(barrier)? Is my thinking correct?

    If I was to speculate on a no-touch barrier, I am directly betting on a lowered realized var then the implied I paid? How does the path dependency effect me?

    I am going somewhere with this if you decide to play along! Thanks very much!

    Comment by largecaptrader — July 14, 2009 @ 8:38 pm | Reply


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