Equity volatility: The technicalities of a variance swap

Equity volatility: Betting on turbulence

Equity volatility: Strategies

The researchers note that the Black-Scholes model was developed in the 1970s to price simple call and put options, and a key point of the model was that market makers could delta hedge – cancel out price movements in the underlying asset – their options positions to remove exposure to market direction.

The residual risk remaining in the portfolio was in the level of implied volatility exposure used to price the options.