|
PureBytes Links
Trading Reference Links
|
Let me say more since there still seems to be some misunderstanding.
Traders using a 5 day per week volatility setting will have a greater
decay factor per day than traders using a 7 day per week input to their
model. Both models have an even and smooth decay factor per day.
The 5 day model decays faster during the week. It does not decay over the
weekend because its daily decay factor is greater than the 7 day model.
The 7 day model decays evenly all 7 days per week, including the weekends.
On one day during the week, the two models will coincide in their option
value.
Since there is no trading over the weekend, according to the 7 day model
the option value will decay on Saturday and Sunday. Is that right? Some
think so.
I am not arguing for one model or the other. I am only presenting the two
alternatives.
The question below assumes that both models have the same daily decay
factor, and that is not true.
Neal
----------
> From: TheGonch at MediaKat <Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>
> To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> Subject: Re: Option Decay
> Date: Saturday, February 07, 1998 8:39 AM
>
> Unless you observe that volatility on Mondays is the equivalent of three
> non-Monday trading days' volatility, how can it be right to adjust time
> value by three days over the weekend?
>
> DanG
>
|