The startup scene in Karachi. I came back home (Karachi) in 2003 and for a list of odd reasons decided to decline two respectable offers to shift to startup mode again. The first two years were a slog. The network I had left when I headed to the US in the ’90′s had grown in prominence and [...]
Alpha, Fair Alpha or Gamma Rent. N. N. Taleb explains Alpha or the Gamma Rent, in his book Dynamic Hedging, as ‘Theta per Gamma ratio’. At first the concept is quite difficult to grasp but when we reduce the risk free rate and the dividend yield rate to zero, the equation starts to become more edible. Equation In [...]
The daisy fields of Nathiagali. The recipe for a perfect break from civilization. Every few years we get together to bring all the kids under one roof in Nathiagali. The week long break is defined by morning and evening walks where the kids ride horses and the adults trek. There is nothing like sitting on a grassy [...]
Chasing Butterflies in Nathiagali. Once you start shooting butterflies with your Canon EOS 70D on your week long vacation, there is not much that you can do to stop. Three evenings and a few hours later here is a sample collection of wings that we found nesting and feeding on our sundeck tree in Nathiagali, [...]
Chasing Swallowtail butteflies Last weekend in Nathiagali late in the afternoon, while lazing around on a sun deck chair, I noticed that the butterflies around our bunglow were feasting on a single flower laden tree. Baba and I had finally sat down to chat and I had been telling him about how the the most recent [...]
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. [...]
Review Option Greeks Primer – Sign up deadline this weekend Option Greeks Primer will be published by Palgrave Macmillan in Q3 of 2014. The book is aimed at bridging the gap that exists in Greeks coverage in academic and practitioner literature. Twenty years ago when I went looking for material on convexity most books on Fixed Income Portfolio [...]
What makes a book? There is so much more that goes in shipping a book to the publisher than just writing it. Two days ago when I shipped the final manuscript to my editorial team, it felt like a time to celebrate and we did. A private sushi dinner and the Edge of Tomorrow provided welcome relief [...]
Vega, Volga and Vanna. The volatility Greeks. What is Vega? Vega is the change in the value of the option with respect to change in volatility. Within the Greeks Vega’s importance rises given how misunderstood the behaviour of volatility is and the impact changes in volatility have on option prices. In earlier chapters we have seen: a) [...]
Gamma correction & Delta hedging P&L results. A simple case study Theoretically speaking in the Black Scholes world the cost of the hedge should be close to the theoretical value of the option. In our cash accounting P&L we have included the theoretical premium received which is used in determining the initial amount to be borrowed. [...]