For the log-squared contract used for covariance swap replication in Section 8.5.1, use replication through calls and
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For the log-squared contract used for covariance swap replication in Section 8.5.1, use replication through calls and puts to demonstrate that a negatively sloped implied correlation smile, linear in log(K/FB(T )
and calibrated to the vol at strike K = FB(T ) will always be more expensive than the flat correlation equivalent, to first order.
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Related Book For
The Value Of Uncertainty Dealing With Risk In The Equity Derivatives Market
ISBN: 9781848167728,9781908979582
1st Edition
Authors: George Kaye
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