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The VV price is quite different when I choose different delta of RR and BF, for example 10-delta and 25-delta. What caused the difference? And how do I choose the appropriate delta? What's the effect when I use different delta of RR and BF?
When changing the delta you would use other market products to hedge, so would get a different price. That is to be expected. Best to use products you can actually trade.
When market volatility shape changes, what is the effect of VV Hedging cost? In my opinion, BF or RR hedging cost should be larger if the volatility smirk becomes more inclined or flexural. But the result seems exactly opposite in Fenics.
Is there any other BETTER way dealing with the volatility Smile (Smirk) effect? Like SABR or some other stochastic volatility model?
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