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by berndL
June 16th, 2014, 11:54 am
Forum: Technical Forum
Topic: FVA for a fully collateralized swap
Replies: 15
Views: 9517

FVA for a fully collateralized swap

<t>QuoteOriginally posted by: DavidJNThis might be purely a language thing but I have never heard of a derivative trade described as being fair or unfair. I think what berndL means in this context is at-the-market or off-market.Yes. I meant an off market swap or an option where the premium makes the...
by berndL
June 11th, 2014, 5:47 pm
Forum: Technical Forum
Topic: FVA for a fully collateralized swap
Replies: 15
Views: 9517

FVA for a fully collateralized swap

<t>Just to talk about Collateral. If there is any amount of collateral that has to be posted and that ist not received either by an upfron premium (unfair trade/unfair irs for example) or by Collateral received on some hedge this amount has to be funded. On a fair Trade or a trade with upfront premi...
by berndL
May 26th, 2014, 12:32 pm
Forum: Numerical Methods Forum
Topic: Implementation of Volatility for Foreign Equity Calls Struck in Domestic Currency
Replies: 3
Views: 5308

Implementation of Volatility for Foreign Equity Calls Struck in Domestic Currency

<t>stochastic volatility would leave you with even more paramters to estimate from historical data (assuming not even implied vols are available). This way there is no advantage of this added complexity. Usually when you have a lot more market information (like liquid exotics) there is an advantage ...
by berndL
May 23rd, 2014, 12:51 pm
Forum: General Forum
Topic: Using local vols to reprice vanilla options..does it work?
Replies: 2
Views: 5093

Using local vols to reprice vanilla options..does it work?

For a numerical calibration there is this paper:Tavella, D. & Klopfer, W. - Implying Local Volatility (2001)Pops up if you search at your favorite engine.
by berndL
May 21st, 2014, 6:37 am
Forum: Technical Forum
Topic: Negative intensities
Replies: 5
Views: 5459

Negative intensities

<t>QuoteOriginally posted by: tw813Hi,We know using Hull White model for default intensity process leads to the unpleasant property of negative intensities.1. Does anyone know what really the undesired consequences for pricing in practice?2. To simulate the default time under the model, is it common...
by berndL
May 20th, 2014, 6:51 am
Forum: Numerical Methods Forum
Topic: Greeks for Asians in Vecer PDE
Replies: 14
Views: 6498

Greeks for Asians in Vecer PDE

Hi,is there any easy way to get the greeks (with respect to the asset price) out of the solution of the vecer pde? It is formulated in a tricky transformed variable z. Thanks.
by berndL
May 15th, 2014, 3:18 pm
Forum: Numerical Methods Forum
Topic: PWOQF, Crank-Nicolson, American options w/ discrete dividends
Replies: 2
Views: 77169

PWOQF, Crank-Nicolson, American options w/ discrete dividends

<t>Hi,i would like to refresh this one. I also stuggled a bit at this stage in his book. First i wonder what if i look at the bermudan jump condition just as setting up a brand new pde ivp with a new terminal condition (given by the bermudan jump condition). The pde is just the same. that is i use t...
by berndL
April 23rd, 2014, 3:18 pm
Forum: Technical Forum
Topic: Inflation Jarrow Yildirim
Replies: 3
Views: 6540

Inflation Jarrow Yildirim

<t>QuoteOriginally posted by: bazzatHi all,I am looking at implementing the Jarrow Yildirim model for the purpose of calculating Inflation on CVA. On first inspection, I see there are three processes - the nominal and real short rate processes and the Inflation Index process.Is it the case that only...
by berndL
April 17th, 2014, 4:15 pm
Forum: General Forum
Topic: FRA yield discounting
Replies: 8
Views: 11293

FRA yield discounting

<t>QuoteOriginally posted by: pcaspersCash Settlement of swaptions is another example in this direction - with even more complicationscash settlement was meant to make it easy to determine the swap value. Imaging you had to agree on bootsrapping/interpolation/instruments to build the curve and so on...
by berndL
March 29th, 2014, 2:12 pm
Forum: General Forum
Topic: Why is martingale measure equivalent to a market one is called "risk -neutral"?
Replies: 15
Views: 7585

Why is martingale measure equivalent to a market one is called "risk -neutral"?

<t>QuoteOriginally posted by: daveangelthe investor's expectations of the returns on an asset are irrelevant to the pricing of the derivative on the asset. Consider a stock that is trading today at $1. If at the end of 1 year there are only two possible states of the stock price (a) it is at $2 or (...
by berndL
March 29th, 2014, 1:50 pm
Forum: General Forum
Topic: Why is martingale measure equivalent to a market one is called "risk -neutral"?
Replies: 15
Views: 7585

Why is martingale measure equivalent to a market one is called "risk -neutral"?

<t>Assuming risk neutrality when pricing derivatives means the real drift of prices does not matter. You assume they drift with the riskless rate r. But what is the assumption behind? Well when you write down your hedging equation (one Unit of the derivative hedged with -delta times the asset) you c...
by berndL
March 27th, 2014, 2:11 pm
Forum: General Forum
Topic: Why is martingale measure equivalent to a market one is called "risk -neutral"?
Replies: 15
Views: 7585

Why is martingale measure equivalent to a market one is called "risk -neutral"?

<t>In the black scholes risk neutral setup all risk can be diversified away by a diffusion eliminating hedge. So for Utility Funtions that give some penality to risk (return volatility) and reword beneficial return using the risk neutral measure in BS does amount to search for a hedging portfolio wi...
by berndL
February 21st, 2014, 8:55 am
Forum: General Forum
Topic: Cooking With Collateral (Vladimir Piterbarg) article question.
Replies: 9
Views: 8472

Cooking With Collateral (Vladimir Piterbarg) article question.

<t>QuoteOriginally posted by: Cuchulainnandcoo01,This looks like a nice discussion on showing Q_f is absolutely continuous wrt Q_d. Maybe you can use it in the current case? Actually, one expects both Q_f << Q_d and Q_d << Q_f. Hence:dQ_df/dQ_d = (dQ_d/dQ_f)^-1 d-almost everywhere. I think the other...
by berndL
February 21st, 2014, 7:45 am
Forum: Technical Forum
Topic: CDS spread currency convention
Replies: 6
Views: 16869

CDS spread currency convention

<t>QuoteOriginally posted by: bluetrinSorry if it is off-topic, but sometimes you will have to consider the fact that the entity intensity of default and the FX rate are correlated. If you are considering the CDS of a major turkish bank, the TRY FX rate will have some correlation.When they are uncor...
by berndL
February 19th, 2014, 2:44 pm
Forum: General Forum
Topic: Cooking With Collateral (Vladimir Piterbarg) article question.
Replies: 9
Views: 8472

Cooking With Collateral (Vladimir Piterbarg) article question.

<t>I dare also an answer.I looks to me that this relationship is just the traditional relationship between those to measures in fx modelling. Nothing special at all here Hi is only introducing a new traded asset. The domestic bond collateralized in foreign currency. But this doesnt change the realat...
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