$ Inside the "perform situation" you liquidate the portfolio at $t_1$ realising its PnL (let me simplify the notation a little)

Vega and Theta are sensetivities to volatility and time, respectively, so their contribution might be:

You issue can be far more on-matter if it summarized Anything you currently comprehend in regards to the calculations and requested a certain concern with regards to the unclear section(s). $endgroup$

Nivel Egres: Within the viewpoint of gamma pnl, The one thing that issues will be the transform in your asset value. Frequency is irrelevant - you could rebalance at distinct time intervals or when delta exceeds a threshold or many other points - it is still an approximation of continuous integral as well as your expected P&L can be a similar.

The web effect of all that is always that amplified delta hedging frequency does just possess the smoothing effect on P/L in excess of long adequate time horizons. But like you point out that you are subjected to 1-off or unusual signify reversion (or development) consequences, but these dissipate over huge samples.

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As stated I do not Believe one particular process is a lot more precise, but a method might be essential or instructed by field requirements or regulations.

Ie: If We all know the stock will probably shut close to the opening cost since it constantly performs with a one vol, and its noon as well as the inventory is down -ten%, we realize that it should go bigger in the last few hours in the working day and we could just outright purchase stock to generate profits.

– Will Commented Nov 24, 2024 at 22:fifteen $begingroup$ I'm not an accountant but I believe that these issues have much more to try and do with conventions and getting dependable in order to convey to if, say, previous calendar year's PnL was far better or even worse than this year's. There might be no scientific way to derive a "proper" method.

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nbbo2nbbo2 12k33 gold badges2323 silver badges3737 bronze badges $endgroup$ 5 $begingroup$ Thank you very much. You calculations are Excellent defined! $endgroup$

I would like to compute the netPnL, realizedPnl and unrealizedPnl by using the most precise valuation type. I only know three here valuation forms

About any more timeframe, You can find not often a statistically substantial autocorrelation in higher frequency returns. If there was, then the above will be applicable which would dampen the result.