And this depends on the rebalancing frequency. But "expected P&L" refers to an average in excess of all doable rate paths. So There's not always a contradiction right here. $endgroup$

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$begingroup$ For an option with value $C$, the P$&$L, with respect to adjustments in the underlying asset value $S$ and volatility $sigma$, is presented by

In many conditions (like bonds within your circumstance) these costs are noticed and unambiguous, That is 'marking to market'; in other situations (in which you may maintain an illiquid unique, like a PRDC one example is) this cost is believed by the Front Business pricer, This really is 'marking to design'.

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In such cases, when we evaluate vol in scaled-down 30 min increments, we are able to see it is actually considerably unique than vol calculated on near to shut prices. Equally traders purchase the straddle with a one vol for instance, who do you're thinking that might be improved off? The person who hedges numerous moments daily or the one that hedges at the time at the end of the day? In this instance, the stock is just not undertaking at some constant vol whatsoever moments in time in excess of the period of the life of the option and all through daily, as a substitute we will see the intraday vol is substantially various which the everyday close to shut vol.

Two traders have purchased a 100 strike ATM straddle (long gamma) that expires in each week on inventory XYZ. The stock price is a hundred. These are equally originally delta neutral. All through expiry, Trader A delta-hedges every moment, and trader B hedges every single stop of day at market shut.

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$begingroup$ @nbbo2 I'm making use of the particular selling price route in the instance for a reason, it disproves the basis of delta-hedging frequency indirectly impacting PnL. And I indicate "predicted P&L" as the choice high quality (PnL) replicated by delta-hedging a posture that may be calculated by subtracting understood volatility from implied volatility.

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