Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 28, 2022 erstellt
Beschreibung:
The main assumption of the vanna-volga method is the existence of a flat but stochastic implied volatility for the pricing of vanilla options. Even though `flat but stochastic' appears to be self-contradictory, it is to an extent justified on empirical grounds. In this short note we argue that the central assumption of the vanna-volga framework may not be as self-contradictory as it may seem at first sight and can be justified on more than purely empirical grounds. Moreover, our discussion also shows that the vega hedge portfolio in the vanna-volga framework is robust and has a sound basis