Risk Management
A wide range of techniques are in use for calculating the options risk exposure, or Greeks (as for example the Vanna-Volga method). Although the option price produced by every model agree (with Garman–Kohlhagen), risk numbers can vary significantly depending on the assumptions used for the properties of spot price movements, volatility surface and interest rate curves.
After Garman–Kohlhagen, the most common models are SABR and local volatility, although when agreeing risk numbers with a counterparty (e.g. for exchanging delta, or calculating the strike on a 25 delta option) Garman–Kohlhagen is always used.
Read more about this topic: Foreign-exchange Option
Famous quotes containing the words risk and/or management:
“When a man leaves his mistress, he runs the risk of being betrayed two or three times daily.”
—Stendhal [Marie Henri Beyle] (1783–1842)
“This we take it is the grand characteristic of our age. By our skill in Mechanism, it has come to pass, that in the management of external things we excel all other ages; while in whatever respects the pure moral nature, in true dignity of soul and character, we are perhaps inferior to most civilised ages.”
—Thomas Carlyle (1795–1881)