Are the calculations ideal? I assumed that the netPnl has to be usually a similar - whatever the valuation form
$begingroup$ I estimate everyday pnl over a CDS place using the spread alter instances the CS01. Nonetheless I would like to estimate the PnL for an extended trade which has gone from the 5Y CDS to your 4Y with linked coupon payments. Lets contemplate:
At the conclusion of the working day, the EV/Avg(PNL) boils right down to iv vs rv of inventory. If All those two are equal, then the EV/PNL will be the similar for the two traders no matter hedging frequency. The sole distinction would be the variance in their PNL as described higher than.
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Kurt G.Kurt G. 2,38944 silver badges1717 bronze badges $endgroup$ 3 $begingroup$ Thanks a whole lot for finding the time to answer. Thanks to your previous equality I realize that the "college case" pnl requires into consideration the effectiveness from the money investment in the profit designed together the way in which, which is $PnL_1rdelta t$.
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When there is autocorrelation while in the intraday return method that you choose to hedge at (which is able to consequently have an effect on every day annualised volatility), then your P/L is without a doubt influenced by your decision of hedging interval.
As it is the pnl from the hedge that offsets the choice quality. Remember to disregard differences due to periodic vs continual for this concern. $endgroup$
As pointed out I will not think one particular method is more exact, but a way may be needed or proposed by field requirements or restrictions.
I really should almost certainly mention that I didn't say which process is suitable. Just planned to give The rationale why These are unique.