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THE DOCTOR wrote:
>
> The existence of "Fat Tails" actually makes options impossible to
> actually price using a conventional options model.
<snip>.....
> Another consideration is that(this is my favorite and actually a
> combination of sorta everything)is that each individual option and it's
> implied represents a unique price distribution(again this is where the
> rocket science currently rests). In fact a consensus distribution may
> exist which represents the current implied. Another important
> consideration(and this far from a complete analysis)i9s that implied,
> right now, is has been a better forecast of future actual than ever
> before. This has been true for some time, but I don't observe it
> everyday...I wish I had the time and resources to really examine this
> issue, because if it holds it would be an huge money making opportunity,
Doctor,
As one who is currently building several different options trading
models, which key on volatility, your comments are very sobering. :)
Hmmmm, If I read what you are saying here, maybe we should be
comparing standardized implied volatility (usually calculated based
on ATM options) vs. a consensus of volatility, possibly based on a
group of options showing the greatest volume, maybe??
Or, maybe calculating implied option vol vs. implied vol of the
underlying contract?
Short of paying a zillion dollars for a true MonteCarlo engine,
how should I be approaching this?
Walt Downs
CIS Trading
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