Journal of Risk Model Validation
ISSN:
1753-9579 (print)
1753-9587 (online)
Editor-in-chief: Steve Satchell
Validation of profit and loss attribution models for equity derivatives
Need to know
This paper includes:
- Parametric synthesis of volatility surfaces.
- Decompose attribution into surface slide, shift, cross effects and residuals.
- Ten Factor attribution via level, theta, delta, gamma, four vega factors, volga and vanna.
Abstract
In this paper, improvements made in profit and loss attribution models for derivatives by treating traditional sensitivities as regression factors are validated. Options surfaces are parametrically summarized permitting a decomposition of their movements into a number of distinct effects.
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