Price path: a new volatility measure by Joanne Hill, Ph.D. and Matthew Celebuski
ARTICLE SYNOPSIS ...Price path: a new volatility measure
by Joanne Hill, Ph.D. and Matthew Celebuski
Many trading strategies rely on market levels or changes in those levels for allocation among asset
classes. In an option replication program, such as portfolio insurance, the option cost is paid throughout
the life of the program. Frequently, the estimated costs differ significantly from the actual cost even when
anticipated volatility estimates are realized.
An important reason for this discrepancy is that the order of the returns impacts the cost of an option
replication program but has no impact on the price...