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by plaser
January 3rd, 2012, 8:50 pm
Forum: Technical Forum
Topic: Swaption vol parameterization
Replies: 3
Views: 16607

Swaption vol parameterization

Thanks for the replies.
by plaser
November 16th, 2011, 6:03 pm
Forum: Technical Forum
Topic: Swaption vol parameterization
Replies: 3
Views: 16607

Swaption vol parameterization

<t>What is the typical vol parameterization used for interest rate swaption surfaces, it would be function of time to maturity and also tenor. In equities typically one parameterizes as vol(T) = a + b*(K/S)/sqrt(T) where a is atm vol and b is skew and I believe in FX one typically has vol(T) = a + b...
by plaser
May 25th, 2010, 6:24 pm
Forum: Technical Forum
Topic: Constructing volatility surface for a basket
Replies: 1
Views: 29887

Constructing volatility surface for a basket

There are some papers by following authors on this topic which were applied in equities:Marco Avellaneda, et. al in RISK.Peter Lee, et. al. in RISK.
by plaser
May 25th, 2010, 6:13 pm
Forum: Technical Forum
Topic: Does local vol model overprices heston model ?
Replies: 11
Views: 34599

Does local vol model overprices heston model ?

2% ain't nothing. Try pricnig a double no touch option using local and stochastic vol. I've seen difference of ~15% on some extreme skew underlyings in FX and ~5-10% for SPX.
by plaser
April 6th, 2010, 1:24 pm
Forum: Programming and Software Forum
Topic: Bloomberg (Terminal) Manual
Replies: 16
Views: 91672

Bloomberg (Terminal) Manual

<t>Let me just warn you that if you put in 5% dividend yield in OVX vanilla option price any sane person would assume it doesForward = Spot exp(-0.05*time)In Bloomberg in infinite wisdom doesForward = Spot/(1+0.05*Time)And of course there is no way to read about these treatments you just have to rev...
by plaser
December 22nd, 2009, 5:03 pm
Forum: Student Forum
Topic: convertible bonds
Replies: 22
Views: 34769

convertible bonds

<t>Optimal solution when as credit->infinity is to go short 100% stock and NOT convert. I can't think of a reason why you want to convert in the case dividend = 0 at least mathematically; there many be other reasons why one would exercise as some mentioned below.Ok first of all let's not mix credit ...
by plaser
June 24th, 2009, 11:47 am
Forum: Technical Forum
Topic: Dupire Formula with Absolute/Discrete Dividends
Replies: 14
Views: 178795

Dupire Formula with Absolute/Discrete Dividends

<t>Use diffuse forward/future instead of spot, then when you need spot just take spot = Future inverse(F) at each grid point and compute payoff. Future/forward doesn't jump across dividends so Dupire formula holds as is. You will probably want to use premium formula instead of implied vol formula un...
by plaser
June 4th, 2009, 8:20 pm
Forum: Technical Forum
Topic: FX model used in market now
Replies: 3
Views: 39169

FX model used in market now

<t>Thanks that's helpful. Given the ill-defined inverse problem here, how does one deal with it? I guess they calibrate to both vanillas and DNT and Barrier and whatever they can get hands on. Wonder what are some constraints on the spot/vol process that one can impose while reproducing all liquid e...
by plaser
June 3rd, 2009, 2:07 am
Forum: Technical Forum
Topic: FX model used in market now
Replies: 3
Views: 39169

FX model used in market now

<t>In FX, there are plethora models such as 1) local vol, 2) stochastic vol, 3) local stochastic vol, 4) vanna volga to price exotics. Currently, what is the market standard for pricing exotics in particular one touches and double no touches. For barrier option pricing (RKO), etc, all 4 models give ...
by plaser
April 17th, 2009, 5:59 pm
Forum: Technical Forum
Topic: silly question on N(d2)
Replies: 6
Views: 41011

silly question on N(d2)

This probably belongs in student section, but the reason is because S is lognormal and not normal. As vol increases the bulk of distribution get shift lower and at infinite basically entire distribution is at 0.
by plaser
April 1st, 2009, 10:23 pm
Forum: Technical Forum
Topic: Timer options
Replies: 29
Views: 52053

Timer options

<t>Not necessarily bigger than plain all I'm saying is gamma risk is the biggest risk of this product and what makes most sell side reluctant to sell this thing at reasonable price. If no jumps, the price is more or less BlackScholes(var target,S).Also the holder of this option is short put option o...
by plaser
March 27th, 2009, 1:04 pm
Forum: Technical Forum
Topic: Timer options
Replies: 29
Views: 52053

Timer options

Biggest risk of these product is daily jump risk because var is observed close to close, if a stock price gets half intraday or gets taken out at double the price, that will lead to massive loss to timer seller. Question is how do you hedge and price this risk.
by plaser
March 26th, 2009, 3:24 pm
Forum: Technical Forum
Topic: How does Renaissance Technologies invest?
Replies: 20
Views: 62045

How does Renaissance Technologies invest?

<t>Medallian Fund has been up like 35% each year after fees over last 20 years with almost no down years (if at all). I'd trust their returns, also they are so secretive and almost noone there ever leaves and they only hire exclusively people with no wall street background noone has a clue what they...
by plaser
March 23rd, 2009, 1:21 pm
Forum: Numerical Methods Forum
Topic: Basket volatility surface
Replies: 1
Views: 44236

Basket volatility surface

There is a paper by Peter Lee, Limin Wang and Karim Abdelkerim in 2003 December issue of Risk Magazine where they do moment matching technique with local correlation model to back out basket skew.
by plaser
February 27th, 2009, 2:30 am
Forum: Student Forum
Topic: Delta hedge for variance swap
Replies: 2
Views: 44934

Delta hedge for variance swap

<t>You are talking about stiicky strike delta, which is delta of integrating Black Scholes calls and puts delta. This only makes if your vega is sticky strike vega. In reality, SPX vols move faster or slower than sticky strike depending on market conditions. Against intuition, if vols indeed are sti...