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by mtsm
September 9th, 2011, 2:04 pm
Forum: Numerical Methods Forum
Topic: best practices: mulit-dim pdes, cheyette, etc...
Replies: 7
Views: 21417

best practices: mulit-dim pdes, cheyette, etc...

<t>Unfortunately I don't have access to this magazine. I don't think your paper is available. Any chance you can post a copy?I spent some time doing some light browsing last night of threads you have written in. What I know at this stage is that the pdes I want to consider have the following feature...
by mtsm
September 8th, 2011, 8:57 pm
Forum: Numerical Methods Forum
Topic: best practices: mulit-dim pdes, cheyette, etc...
Replies: 7
Views: 21417

best practices: mulit-dim pdes, cheyette, etc...

double posted
by mtsm
September 8th, 2011, 8:54 pm
Forum: Numerical Methods Forum
Topic: best practices: mulit-dim pdes, cheyette, etc...
Replies: 7
Views: 21417

best practices: mulit-dim pdes, cheyette, etc...

<t>hi, thank you for your reply. I appreciate it and was actually hoping you would reply. No, I am not a student. I am practiotioner. I have a few years of experience on the dealer side with all sorts of fixed income products and models, but I am now on the client side. Our mandate here is quite dif...
by mtsm
September 8th, 2011, 2:18 pm
Forum: Numerical Methods Forum
Topic: best practices: mulit-dim pdes, cheyette, etc...
Replies: 7
Views: 21417

best practices: mulit-dim pdes, cheyette, etc...

<t>Hi, I know you guys have been discussing this a lot over the years on this place and I will do some searching, but I wanted to ask you if it would be possible to provide some guidelines if any have emerged from your research and discussions. Threads, wisdom, pointers to books, etc... are greatly ...
by mtsm
August 31st, 2011, 7:27 pm
Forum: Technical Forum
Topic: SABR with negative strikes
Replies: 4
Views: 19663

SABR with negative strikes

<t>thank you for pointing out this reference, which I of course know of, but never bothered readingfor lack of time.yes, I agree. I was misinterpreting what you said and thought that you were talking about an instantaneous reflection. In a Black shadow rate model for instance the process eventually ...
by mtsm
August 31st, 2011, 5:19 pm
Forum: Technical Forum
Topic: SABR with negative strikes
Replies: 4
Views: 19663

SABR with negative strikes

<t>thank you for your knowledgeable reply. I have a couple of questions.I agree that the lognormal expansion will necessarily fail, but the normal one does not. (On a side note, I don't know anybody who cares to use the lognormal SABR expansion expansion anymore. Is anyone still using this?)The norm...
by mtsm
August 31st, 2011, 1:23 pm
Forum: Technical Forum
Topic: SABR with negative strikes
Replies: 4
Views: 19663

SABR with negative strikes

How does the SABR model do with negative strike options when beta < 1/2? In particular, is the original equivalent vol expansion valid?
by mtsm
August 19th, 2011, 12:23 am
Forum: Technical Forum
Topic: current common practices for interest rate skew
Replies: 3
Views: 20115

current common practices for interest rate skew

<t>My interest in this topic has been refreshed by the swiss front end going negative lately.What are common best practices for modeling interest rate option skew? On a large scale, the interest rate option skew probably is a curve that has two or more inflexion points. The standard option pricing m...
by mtsm
August 15th, 2011, 9:51 pm
Forum: Technical Forum
Topic: FX forwards and implied curve related questions
Replies: 1
Views: 22630

FX forwards and implied curve related questions

<t>I have a couple of questions regarding FX forward (points) implied curve construction. Given a domestic discount curve, it is possible to imply a foreign discount curve from the academic no-arbitrage relationship between spot and forward FX rates, which would have previously been obtained from qu...
by mtsm
August 5th, 2011, 3:46 pm
Forum: Technical Forum
Topic: term structure model with rate dependent skew
Replies: 7
Views: 19202

term structure model with rate dependent skew

<t>That would be very elementary starting point, which I am trying to avoid actually. As usual, I am trying to rely on existing work. It is definitely necessary to consider a multi-factor model. Also, it is not clear that you want to bake a nonlinear diffusion coefficient into the differential dynam...
by mtsm
August 4th, 2011, 3:55 pm
Forum: Technical Forum
Topic: term structure model with rate dependent skew
Replies: 7
Views: 19202

term structure model with rate dependent skew

<t>I don't think that BGM is the right framework to look at this. I don't really want to price complicated derivatives. BGM is kind of a silly model in the econmic sense of things. Don't get me wrong I value BGM highly, but it's kind of a vol surface specific thing, not so much a rates specific thin...
by mtsm
August 4th, 2011, 2:49 pm
Forum: Technical Forum
Topic: term structure model with rate dependent skew
Replies: 7
Views: 19202

term structure model with rate dependent skew

<t>I need a term structure model that affords rate dependent skew in a way that is compatible with market phenomenology... That is, it should have lognormal skew when rates are low and normal skew when rates are high.In other words the model should have rate dependent statistics. How could I achieve...
by mtsm
July 26th, 2011, 11:03 am
Forum: Technical Forum
Topic: modified interest rate CMS spread option
Replies: 0
Views: 18521

modified interest rate CMS spread option

<t>Plain CMS spread options can be priced outside of a term structure model by invoking some kind of terminal swap approximationon the two component rates and cooking up their joint distribution function. Since the CMS spread is paid out at its fixing time, i.e. when the option expires, it is natura...
by mtsm
May 25th, 2011, 11:13 pm
Forum: Technical Forum
Topic: european swaption dv01 delta
Replies: 2
Views: 23322

european swaption dv01 delta

<t>how do you handle dv01 delta risk for a european swaption that is physically settled?the delta risk in the optionality part of a swaption, whether vol is stochastic or not, can be nicely handled by expressing all delta (i.e. delta and vega-delta) with respect to the forward rate of the underlying...
by mtsm
May 23rd, 2011, 1:34 pm
Forum: Technical Forum
Topic: trader?s P&L on delta-hedged positions as vega times times the daily change in implied vol
Replies: 4
Views: 20702

trader?s P&L on delta-hedged positions as vega times times the daily change in implied vol

<t>yes, but there are some issues related to parameter risks. i.e. model vol is variable, but what do you do about vol of volfor example? with stochastic implied vol as a variable, that problem isn't there, but in a real p&l system, you need to remark your model parameters also.I don't like it b...
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