$ Inside the "function circumstance" you liquidate the portfolio at $t_1$ realising its PnL (allow me to simplify the notation a tad)

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Or does it seriously not issue? I indicate both can return distinct values so I need to inquire which price is a lot more correct. $endgroup$

$begingroup$ In case you have a time number of gathered/on likely PnL figures, $X_t$, you ought to be thorough to transform these into a additional stationary information number of interval PnL changes (possibly daily improvements):

ExIRExIR 16711 bronze badge $endgroup$ 1 $begingroup$ Many thanks for supporting, but does that mean theta pnl only partly offsets Gamma pnl rather than fully even when implied vol = recognized vol? Because assuming desire premiums are zero, there is no other supply of producing dollars. $endgroup$

$begingroup$ @nbbo2 I'm utilizing the specific value path in the example for the reason, it disproves the basis of delta-hedging frequency not directly affecting PnL. And I imply "expected P&L" as the choice high quality (PnL) replicated by delta-hedging a placement which may be calculated by subtracting recognized volatility from implied volatility.

Meaning if $sigma$ adjustments since the underlying changes you could potentially account for that second-order result with additional sensitivities (vanna specially), but All those effects are typically Significantly lesser and will be insignificant determined by your reason.

Let us also take into consideration consistent curiosity charge r and frequent hazard charge $lambda$ over the website life of the deal. $$

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Matt B.Matt B. 22111 silver badge22 bronze badges $endgroup$ five $begingroup$ Thanks Matt for your reply. Did you know usually the amount of such instruments are evaluated regularly with standard investment lender. $endgroup$

Two traders have acquired a one hundred strike ATM straddle (extensive gamma) that expires in weekly on stock XYZ. The stock rate is one hundred. They can be both in the beginning delta neutral. During expiry, Trader A delta-hedges each and every moment, and trader B hedges just about every conclude of day at market near.

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These two PnLs never coincide. Which a single do you suspect helps make extra sense? Which is there a way to attach the two?

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