SERVING THE QUANTITATIVE FINANCE COMMUNITY

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by Costeanu
December 27th, 2010, 11:26 pm
Forum: Student Forum
Topic: Abstract Algebra(applications)
Replies: 12
Views: 23991

Abstract Algebra(applications)

<t>At the end of Labordere's book there is a chapter with applications of Hopf algebras to finding local volatility models that can be exactly (weakly) simulated. Regarding applications of category theory to math fin, I'm not aware of a direct application. However, they are used in functional progra...
by Costeanu
December 17th, 2010, 2:23 pm
Forum: Careers Forum
Topic: Can a CFA help mom back to work?
Replies: 14
Views: 25379

Can a CFA help mom back to work?

<t>Hi Mot, You are a hero, and it's a pity your welcome on the wilmott forum was not more enthusiastic. However, I'm pretty sure most of the readers feel admiration for you, but didn't really have an answer to your specific question. So, in my opinion, I think CFA won't help much. It takes a lot of ...
by Costeanu
December 7th, 2010, 6:20 pm
Forum: Student Forum
Topic: How to create new financial products
Replies: 7
Views: 26009

How to create new financial products

<t>Skaradas,You couldn't find such a paper because financial products are introduced by the market (traders, structurers), not by people who write articles. In general there are a few general themes in the markets, like:- people want principal protection- carry trade: low yielding currencies vs high...
by Costeanu
November 10th, 2010, 2:33 pm
Forum: Technical Forum
Topic: Calibration of Cheyette / Quasi Gaussian short rate model
Replies: 30
Views: 39920

Calibration of Cheyette / Quasi Gaussian short rate model

The discount factor is path dependent. More precisely it is exp(-integral(short rate)).
by Costeanu
November 5th, 2010, 5:54 pm
Forum: Technical Forum
Topic: Calibration of Cheyette / Quasi Gaussian short rate model
Replies: 30
Views: 39920

Calibration of Cheyette / Quasi Gaussian short rate model

<t>QuoteBut I have one big problem: How do I calculate the Swaption prices (step 3) depending on my scenarios?A swaption is an option. How do you price an option using MC? Take expected value of the discounted payoff. The question is now: what is the payoff of the swaption? I guess I'll let you figu...
by Costeanu
November 4th, 2010, 2:44 pm
Forum: Technical Forum
Topic: Calibration of Cheyette / Quasi Gaussian short rate model
Replies: 30
Views: 39920

Calibration of Cheyette / Quasi Gaussian short rate model

<t>Hi Kiri,Calibrating the model should be the second stage. Before you calibrate you should first get a feel for it. 1. implement it in a Monte Carlo2. see that you recover the initial zero curve (i.e. Z(0,T) = E[ 1/ CashBond(T)] for various maturities T); of course there will be some noise3. see t...
by Costeanu
November 3rd, 2010, 12:30 pm
Forum: Technical Forum
Topic: Calibration of Cheyette / Quasi Gaussian short rate model
Replies: 30
Views: 39920

Calibration of Cheyette / Quasi Gaussian short rate model

<t>Hi Kiri,Let's say you have a diffusion dr = mu*dt + sigma(r)*dW, and sigma is zero at r=0 and positive for r>0. Then, during your diffusion, if at any time you reach 0, you are only affected by the drift. If that drift, at that time, is negative, you cross the level 0, and you obtain negative rat...
by Costeanu
October 22nd, 2010, 4:05 pm
Forum: Book And Research Paper Forum
Topic: Book on Interest Rate Modelling by Leif Andersen and Vladimir Piterbarg
Replies: 244
Views: 150633

Book on Interest Rate Modelling by Leif Andersen and Vladimir Piterbarg

<t>That's correct quantmeh. However, for how many books do you get a pdf copy once you buy the physical one? By the way, a softcover is more convenient than a hardcover. Is it natural to ask for the softcover once you bought the hardcover? I guess it's a good idea for Leif and Vladimir to sell their...
by Costeanu
October 21st, 2010, 9:25 am
Forum: Technical Forum
Topic: Avoid negative interest rates in Hull White model
Replies: 12
Views: 35251

Avoid negative interest rates in Hull White model

<t>Hi Kiri,1) You don't need to calibrate any drift parameters in the quasi-Gaussian model (I prefer to use this term, since it was used by Jamshidian before Cheyette) The drift calibration is automatic in this model2) The vol calibration is a bit more involved. I'll describe it separately3) Correct...
by Costeanu
October 20th, 2010, 1:50 pm
Forum: Technical Forum
Topic: Avoid negative interest rates in Hull White model
Replies: 12
Views: 35251

Avoid negative interest rates in Hull White model

<t>Hi Kiri, The Cheyette model was explained extremely poorly in the "old times" (i.e. before this book). Don't be scared of it. It's a very slight generalization of the Hull-White model. Between buying the A&P book and the B&M one, I wouldn't hesitate one second (I have both, I lent B&M...
by Costeanu
October 19th, 2010, 4:26 pm
Forum: Technical Forum
Topic: Avoid negative interest rates in Hull White model
Replies: 12
Views: 35251

Avoid negative interest rates in Hull White model

<t>Hi Kiri,The Hull-White model is also named the Gaussian short rate model. If you look in Andersen and Piterbarg's book, you will find a chapter about the "quasi-Gaussian" short rate model, which is a slight generalization. It is very well explained. This model is also known as Cheyette, or Ritchk...
by Costeanu
October 19th, 2010, 9:45 am
Forum: Student Forum
Topic: derivative volatility problem - interview question
Replies: 4
Views: 22935

derivative volatility problem - interview question

<t>That's a bit of a trick question (the original one, about S1-S2). That's because if S1 and S2 are lognormally distributed, their difference is not. Neither is their sum, but at least the sum is positive, and a lognormal distribution is not really a terrible approximation. However, for the differe...
by Costeanu
October 1st, 2010, 1:21 pm
Forum: Numerical Methods Forum
Topic: Barrier option up and in
Replies: 16
Views: 31400

Barrier option up and in

Why don't you just use KO + KI = vanilla?
by Costeanu
September 30th, 2010, 2:27 pm
Forum: Technical Forum
Topic: fancy maths: what for ?
Replies: 17
Views: 25894

fancy maths: what for ?

<t>I looked a bit at SPDE's and interest rates today. I don't know too much about this, there might be something there. I'm a bit skeptical, but let's give them the benefit of the doubt (although again, the idea appeared more than 10 years ago). Skorohod embedding sounds semi-interesting. The proble...
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