Stochastic Volatility: the Hedger's Perspective
Mark Davis, Department of Mathematics, Imperial College London

Abstract:
A satisfactory treatment of stochastic volatility is needed for marking to market, for computing hedge parameters and for calculating value at risk. We argue that the model requirements in these three cases are very different, and concentrate mainly on the second, with a view to answering the following questions. (a) How good does a model have to be for successful hedging? (b) How can we best formalize 'vega hedging'?