← InstitutionalLesson 18 · 4:39
Spot-vol grids and stress tests
Summary
You can build and read a spot-vol grid that prices a book again across price and volatility moves at once. You can explain why full revaluation beats the Greeks' estimate in a big move, replay real dated shocks, add a skew scenario, and size a book to a stress limit.
Key terms
- spot-vol grid
- A table that prices every option in a book again at each pair of price move and volatility move.
- full revaluation
- Pricing every option in the book again at the new price and volatility instead of using the Greeks' estimate.
- historical shock replay
- Applying a real dated move in the index and the VIX to a book as if it happened in one day.
- skew scenario
- A stress test where far strikes' volatility rises more than near ones, which a flat grid misses.
- stress limit
- The most the worst cell or scenario may lose, used to set how big a book can be.
- strangle
- A put below and a call above the price, both sold or both bought, in the same expiry.
Check yourself
Answer each question to see why the right answer is right.
1. The XYZ book (10 sold strangles, 10 sold put spreads, short shares) has zero delta. Volatility rises from 30% to 60% with the stock unchanged. What happens?
2. On the book's spot-vol grid, where is the only green?
3. XYZ slides down 30%, like March 2020, with volatility held at 30%. The Greeks say about a $36,000 loss. Pricing every option again says under $20,000. Why the difference?
4. Replayed on XYZ in one day, February 2018 loses about $6,600, August 2024 about $6,700, and March 2020 about $21,000. Why replay real shocks at all?
5. Your desk has $100,000 and the worst cell may lose no more than $10,000. Ten lots lose $13,739 in the worst cell; seven lose $9,619. But replaying March 2020 on seven lots loses about $14,900. What should you take from this?
Finished the video and the quiz? .