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by LocalVolatility
December 12th, 2012, 9:05 pm
Forum: Student Forum
Topic: Correlation question
Replies: 25
Views: 11492

Correlation question

Trader4Alpha: Let's say (in the three asset case) the rho is 0.50. Your formula suggests that the lower bound for the missing correlation is -1.00. However, the correlation matrix I get from using this value is not positive semidefinite?
by LocalVolatility
December 12th, 2012, 3:02 pm
Forum: Student Forum
Topic: Correlation question
Replies: 25
Views: 11492

Correlation question

You could go via the eigenvalues. You know that the correlation matrix is positive semidefinite if and only if all eigenvalues are non-negative. If you compute the eigenvalues of the matrixthen you getand the restrictionsfollow.
by LocalVolatility
December 12th, 2012, 10:46 am
Forum: Student Forum
Topic: Understanding BS probability of exercise N(d2)
Replies: 2
Views: 9439

Understanding BS probability of exercise N(d2)

<t>Here is another way to explain it. The terminal stock price is log-normally distributed with its mean (under the risk-neutral measure) being equal to the forward (independent of the volatility). The log-normal distribution is positively skewed which means that the right tail of the distribution i...
by LocalVolatility
December 8th, 2012, 4:37 pm
Forum: Student Forum
Topic: sequence of Head and tail
Replies: 4
Views: 9450

sequence of Head and tail

And here are my answers for the other questions:1) 62.50%2) 50.00%3) 5 throws4) 10 throws / 8 throws
by LocalVolatility
December 8th, 2012, 10:20 am
Forum: Student Forum
Topic: sequence of Head and tail
Replies: 4
Views: 9450

sequence of Head and tail

<t>I'll solve part (1) for you - the rest (incl. computing the durations) follows along the same lines. The key is to use a de Bruijn graph to figure out which sequences of three coins throws can follow one another. Let's use the plot from Wikipedia:The relevant case for us is the green one at the t...
by LocalVolatility
December 7th, 2012, 2:44 pm
Forum: Student Forum
Topic: Exponential Moments of Levy Processes
Replies: 4
Views: 9856

Exponential Moments of Levy Processes

<t>Hi Antonio,I have to disappoint you in that I chose this interval nearly arbitrarily. I am rather new to Levy processes and came across a paper where an integrability condition for the spot price in an exp. Levy model under an equivalent martingale measure was stated. I couldn't reproduce this co...
by LocalVolatility
December 6th, 2012, 1:50 pm
Forum: Student Forum
Topic: Exponential Moments of Levy Processes
Replies: 4
Views: 9856

Exponential Moments of Levy Processes

Thank you Alan!
by LocalVolatility
December 6th, 2012, 12:33 pm
Forum: Student Forum
Topic: Exponential Moments of Levy Processes
Replies: 4
Views: 9856

Exponential Moments of Levy Processes

<t>Hi,I have a (probably very simple) question regarding the exponential moments for Levy processes. By Proposition 3.14 in Cont and Tankov (2004) or Theorem 25.17 in Applebaum (2004), the exponential moment of a Levy process is finite if . My question is: The domain of integration comes from the tr...
by LocalVolatility
August 10th, 2012, 4:02 pm
Forum: Student Forum
Topic: Chacko & Viceira (2003) Implementation
Replies: 0
Views: 11018

Chacko & Viceira (2003) Implementation

<t>Hi,I am struggling to implement the spectral GMM estimation procedure of Chacko, Viceira (2003) "Spectral GMM Estimation of Continuous-Time Processes", Journal of Econometrics. As a test, I want to estimate the drift and diffusion term in the Black-Scholes model using this procedure. I know that ...
by LocalVolatility
November 1st, 2011, 1:48 pm
Forum: Student Forum
Topic: Distribution of log-returns under Heston's stochastic volatility model
Replies: 3
Views: 17399

Distribution of log-returns under Heston's stochastic volatility model

There is a closed form solution for the characteristic function of the logarithmic terminal spot prices. So you could use a numerical Fourier inversion to recover the density. The characteristic function is in Heston's original '93 Review of Financial Studies paper.
by LocalVolatility
September 27th, 2010, 2:28 pm
Forum: Student Forum
Topic: working paper "Exotic Options" by Reiner and Rubinstein
Replies: 3
Views: 29017

working paper "Exotic Options" by Reiner and Rubinstein

Thank you very much spursfan!
by LocalVolatility
September 27th, 2010, 1:55 pm
Forum: Student Forum
Topic: working paper "Exotic Options" by Reiner and Rubinstein
Replies: 3
Views: 29017

working paper "Exotic Options" by Reiner and Rubinstein

Hi,I am trying to find the above working paper but couldn't locate anywhere in the web. Even my school's library doesn't find an electronic source that contains it. Does anyone have an copy of it?Cheers!
by LocalVolatility
August 14th, 2010, 3:51 pm
Forum: Student Forum
Topic: proof for no-arbitrage condition in the SVI parametrization
Replies: 6
Views: 28511

proof for no-arbitrage condition in the SVI parametrization

Thank you AVt for the references. I noticed it when reconstructing the examples from Gatheral's slides to use in my thesis. Do you know how people handle this in practice?
by LocalVolatility
August 14th, 2010, 12:56 pm
Forum: Technical Forum
Topic: SVI parametrization not free of arbitrage
Replies: 0
Views: 25050

SVI parametrization not free of arbitrage

<r>May I draw your attention to my thread in the student forum: <URL url="http://www.wilmott.com/messageview.cfm?catid=8&threadid=78714.I"><LINK_TEXT text="http://www.wilmott.com/messageview.cfm? ... id=78714.I">http://www.wilmott.com/messageview.cfm?catid=8&threadid=78714.I</LINK_TEXT></URL...
by LocalVolatility
August 14th, 2010, 12:50 pm
Forum: Student Forum
Topic: infinite volatility
Replies: 6
Views: 31033

infinite volatility

<t>@BlackGreyhound: In the Black-Scholes framework, the value of a digital call (limit of the spread when the difference between the strikes goes to zero) is zero for infinite volatility. Intuitively, you would expect the value of an at-the-money digital call with a short maturity to be roughly 50%....
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