## Volatility, Skew, and Smile Trading

Peter Carr recently gave a talk on volatility trading at the Fields institute. Summary: In general, an option’s fair value depends crucially on the volatility of its underlying asset. In a stochastic volatility (SV) setting, an at-the-money straddle can be dynamically traded to proﬁt on average from the diﬀerence between its underlying’s instantaneous variance rate…

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