Comments on: The Complete Guide To Option Pricing Formulas, and Derivatives, Models on Models (II) http://alephblog.com/2008/12/13/the-complete-guide-to-option-pricing-formulas-and-derivatives-models-on-models-ii/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Fri, 25 May 2012 21:31:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Kurt Osishttp://alephblog.com/2008/12/13/the-complete-guide-to-option-pricing-formulas-and-derivatives-models-on-models-ii/comment-page-1/#comment-20397 Kurt Osis Sun, 14 Dec 2008 13:37:07 +0000 http://alephblog.com/?p=1248#comment-20397 I will concede the point, as I have not read these particular books. I have generally stopped reading books on options pricing as they all seem to make the same mistakes. (I fear they'll contaminate my mind and I'll begin to believe its actually possible to forecast volatility). I know many a financial engineer who will agree on principal that variance is infinite in the morning and then talk about "ten sigma moves" in interest rates in the afternoon. They seem to fail to see inherent contradiction. In reality if you hedge options with options (as I do), there is no need to estimate volatility at all. I will concede the point, as I have not read these particular books. I have generally stopped reading books on options pricing as they all seem to make the same mistakes. (I fear they’ll contaminate my mind and I’ll begin to believe its actually possible to forecast volatility).

I know many a financial engineer who will agree on principal that variance is infinite in the morning and then talk about “ten sigma moves” in interest rates in the afternoon. They seem to fail to see inherent contradiction.

In reality if you hedge options with options (as I do), there is no need to estimate volatility at all.

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