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Implied volatility and hedge P&L. Mapping P&L distributions.

Implied volatility and relative hedging P&L. Four scenarios to set things right.

We go back to a simple world where implied volatility can take four possible values. 10%, 20%, 30% and 40%. As a trading desk we can write and sell options at each of these implied volatility levels. We decide to write a call option. […]

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