In short, the option writer is contractually entitled to the
should be evident that the option writer is the one who is at risk of
opposite direction, from the option writer to the option holder, not, as
the inception of the contract, H had agreed to pay W, the option writer,
Insurance companies contract with other insurance companies (re-insurers) to partially manage their risk and
option writers can develop sophisticated strategies to offset or pass some of their risk to others.
That is, (6) requires that changes in volatility do not create priced risk for an
option writer.
They also note that option writers should be compensated for bearing the risk of shocks in volatility.
This right/obligation asymmetry that is inherent in options prompts the risk-averse option writers to mark up the premium to account for any unexpected hike in volatility.
2], is the volatility or variance risk premium demanded by option writers.
Option writers are the people who are selling option contracts to the speculators.
Credit enhancers and
option writers efficiently price principal protection options, guarantees and total rate of return swaps for the structures built on a consistent volatility platform.
