This newsletter highlights that volatility choice is central to effective delta hedging.

Both studies show that implied volatility, because it is forward-looking and market-based, generally provides lower tracking error, more stable hedging, and better risk control, especially in short-horizon and frequently rebalanced strategies.

Historical or realized volatility can still work in calm markets, but it reacts too slowly during volatility regime shifts, leading to larger hedging errors.

The broader takeaway is that volatility inputs should be selected based on market regime, investment horizon, and risk objectives rather than treated as interchangeable parameters.

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