Peter Carr's Hall of Mirrors
Put-call symmetry may have been the start but, for Peter Carr, the importance of invariance extends into surprising realms of possibility. Dan Tudball traces Carr's kaleidoscopic journey...
- Dan Tudball for Wilmott May 12th, 2017
- Source: http://onlinelibrary.wiley.com/doi/10.1002/wilm.10592/abstract
It's the mid-1990s, the Wall Street of the Masters of the Universe is partying like it's 1999, LTCM and the dotcom bubble are yet to spoil the good times. Peter Carr and Dilip Madan have developed a robust hedge for variance swaps using vanilla options such that static positions in the options combine with dynamic trading in the underlying. The amazing thing is that the hedge works in a big class of models.