Rethinking P&L attribution for options
A buy-side perspective on how to decompose the P&L of index options is presented
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Common market wisdom holds that the differential between implied and realised volatility is the main profit-and-loss (P&L) driver for a delta-hedged, at-the-money option. Olivier Daviaud shows that for Standard & Poor’s 500 options this is often not the case, and he provides a mathematical and practical understanding of that difference. The tool used throughout is a new formula, first introduced by the author in a prior publication, which here is turned into a bona
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