- #1
volplayer
- 1
- 0
Hi,
Haven't studied math for a while and thought I'd ask you for help. It regards implied correlation based on implied volatility for FX options.
(b/c)=(a/c)/(a/b)
Var(b/c) = Var(a/c)+Var(a/b) - 2*Sigma(a/c)*Sigma(a/b)*Corr(a/c,a/b)
When breaking out the Corr(a/c,a/b) from the formula, we get the following:
Corr(a/c,a/b) = (Var(a/c)+Var(a/b)-Var(b/c)) / (2*Sigma(a/c)*Sigma(a/b))
Now let's break out (a/c)
(a/c) = (b/c) * (a/b)
Now I have understood that the Corr(b/c,a/b) formula is the following
Corr(b/c,a/b) = (Var(a/c)-Var(b/c)-Var(a/b)) / (2*Sigma(b/c)*Sigma(a/b))
Does this mean the Var(a/c) formula is like the following
Var(a/c) = Var(b/c)+Var(a/b) + 2*Sigma(b/c)*Sigma(a/b)*Corr(b/c,a/b) ?
I.e. you have a PLUS instead of a MINUS infront of the 2*Sigma*Sigma*Corr part?
Happy if someone could answer this.
Haven't studied math for a while and thought I'd ask you for help. It regards implied correlation based on implied volatility for FX options.
(b/c)=(a/c)/(a/b)
Var(b/c) = Var(a/c)+Var(a/b) - 2*Sigma(a/c)*Sigma(a/b)*Corr(a/c,a/b)
When breaking out the Corr(a/c,a/b) from the formula, we get the following:
Corr(a/c,a/b) = (Var(a/c)+Var(a/b)-Var(b/c)) / (2*Sigma(a/c)*Sigma(a/b))
Now let's break out (a/c)
(a/c) = (b/c) * (a/b)
Now I have understood that the Corr(b/c,a/b) formula is the following
Corr(b/c,a/b) = (Var(a/c)-Var(b/c)-Var(a/b)) / (2*Sigma(b/c)*Sigma(a/b))
Does this mean the Var(a/c) formula is like the following
Var(a/c) = Var(b/c)+Var(a/b) + 2*Sigma(b/c)*Sigma(a/b)*Corr(b/c,a/b) ?
I.e. you have a PLUS instead of a MINUS infront of the 2*Sigma*Sigma*Corr part?
Happy if someone could answer this.