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by AnnaBegins
January 15th, 2008, 3:03 pm
Forum: General Forum
Topic: Index Linked Bond Vol vs. Nominal Bond vol
Replies: 4
Views: 61590

Index Linked Bond Vol vs. Nominal Bond vol

<t>thanks for the replies.... the calibration was actually produced by someone else so can't explain the reasoning behind the vols in the model.the nominal rate vol is 30% and the real rate vol is 15%...and the correlation between the two curves is +0.2.Can anyone explain what the nominal and inflat...
by AnnaBegins
January 10th, 2008, 8:41 am
Forum: General Forum
Topic: Index Linked Bond Vol vs. Nominal Bond vol
Replies: 4
Views: 61590

Index Linked Bond Vol vs. Nominal Bond vol

<t>Why are index linked bonds more volatile than nominal bonds? (My vol numbers are produced using simulation rather than historical analysis. My simulation uses a Vasicek model to simulate the real yield curve and the nominal yield curve with different calibrations. Inflation is modelled using the ...
by AnnaBegins
September 21st, 2007, 2:53 pm
Forum: Student Forum
Topic: Calculating volatility for long/short portfolio
Replies: 19
Views: 72537

Calculating volatility for long/short portfolio

Folks,Thanks for your comments.... I will follow your advice Alan and calculate the standard deviation of those returns which have not caused bankruptcy (and set the simulations that do end in bankruptcy to -99.99%)Cheers,AB
by AnnaBegins
September 21st, 2007, 10:07 am
Forum: Student Forum
Topic: Calculating volatility for long/short portfolio
Replies: 19
Views: 72537

Calculating volatility for long/short portfolio

interesting point....we don't force the user to insert a cash holding along with short positions in our model.... but maybe we should....We are typically looking over longer horizons (1 year or more) and hence the probability of P(t) going to zero (or 4) is non-zero.
by AnnaBegins
September 21st, 2007, 9:46 am
Forum: Student Forum
Topic: Calculating volatility for long/short portfolio
Replies: 19
Views: 72537

Calculating volatility for long/short portfolio

Thanks.In the first equation if P(t) = 0, the log function cannot be calculated.----> I can get round this by setting P(t) = 0.001For the short positions, my engine is trying to calculate ln((-4)/1) = undefined.... (if P(t) = 4 and P(t-1) = 1)Any thoughts?AB
by AnnaBegins
September 21st, 2007, 8:44 am
Forum: Student Forum
Topic: Calculating volatility for long/short portfolio
Replies: 19
Views: 72537

Calculating volatility for long/short portfolio

<t>Hi,In my monte-carlo simulation model, I calculate (and output) volatility as the standard deviation of log returns. However, if I simulate a long/short portfolio of equities over 1 year, I sometimes see returns that are less than -100%. e.g. I hold a short position in vodafone and the stock trip...
by AnnaBegins
December 5th, 2006, 8:30 am
Forum: Student Forum
Topic: Gaussian Copula Formula
Replies: 4
Views: 88641

Gaussian Copula Formula

Many thanks.
by AnnaBegins
December 4th, 2006, 12:39 pm
Forum: Student Forum
Topic: Gaussian Copula Formula
Replies: 4
Views: 88641

Gaussian Copula Formula

Thanks Meteor,However, when I implement this, the second version gives me correlations equal to rho....Could you show me the proof?
by AnnaBegins
November 23rd, 2006, 10:54 am
Forum: Student Forum
Topic: Gaussian Copula Formula
Replies: 4
Views: 88641

Gaussian Copula Formula

<t>In the book "Credit Derivatives - the definitive guide" by Jon Gregory the formula to produce correlated random shocks is given as: Ri = (SQRT(rho))*Rm + (SQRT((1-rho))*EiIs this wrong? When I implement this the correlations don't match my targets... However, if i use the following formual they d...
by AnnaBegins
November 8th, 2006, 10:43 am
Forum: General Forum
Topic: Which currency pairs have the most pronounced smile?
Replies: 4
Views: 89782

Which currency pairs have the most pronounced smile?

<t>The smile offers a view of the behaviour of the underlying volatility - and the correlation between the underlying price movements and volatility. ie. equity markets exhibit a negative skew as volatility tends to increase when markets fall (negative correlation between price and vol.) Similarly, ...
by AnnaBegins
September 26th, 2006, 7:24 am
Forum: Student Forum
Topic: CDO Ratings
Replies: 4
Views: 92649

CDO Ratings

Thanks bigbird... thats exactly what I'm looking for!AB
by AnnaBegins
September 22nd, 2006, 2:14 pm
Forum: Student Forum
Topic: CDO Ratings
Replies: 4
Views: 92649

CDO Ratings

If a CDO has a rating of AAA what does this mean?I am assuming that this is linked to a percentile of the loss distribution (for some assumed level of correlation). Is this correct? And if so, are the "cut-off" points stated anywhere? I can't see anything on the S&P site....Cheers,AB
by AnnaBegins
September 18th, 2006, 8:45 am
Forum: Student Forum
Topic: Skewness in Credit Portfolio Returns
Replies: 5
Views: 93151

Skewness in Credit Portfolio Returns

<t>Thanks Lepperbe,Thats a good point and makes sense. I'm not sure of the exact correlation between credit spreads and interest rates but a negative correlation would be sensible - and cause a 'dampening' effect on the skew. I don't think I agree with your first point tho. I think lower quality cre...
by AnnaBegins
September 15th, 2006, 9:16 am
Forum: Student Forum
Topic: Skewness in Credit Portfolio Returns
Replies: 5
Views: 93151

Skewness in Credit Portfolio Returns

<t>Hi Lepperbe - thanks for your response.I agree with you that the interest rate risk would be higher for longer duration bonds.However, I'm not sure why interest rate risk would affect AA bonds more than B bonds. I would expect both bonds to be driven by changes in the government yield curve - wit...
by AnnaBegins
September 14th, 2006, 1:56 pm
Forum: Student Forum
Topic: Skewness in Credit Portfolio Returns
Replies: 5
Views: 93151

Skewness in Credit Portfolio Returns

<t>Using a JLT credit model, I am examining the skewness of returns for various portfolios.I would expect that the returns would be more negatively skewedText as the credit rating fell. i.e. the skewness of a portfolio which holds 20 "AA" bonds would be "less negative" than an equivalent portfolio w...