<t>Thank you for taking the time to answer. I was finally able to run a model with serially correlated lognormal returns and the resulting cumulative returns do have much higher volatility as time increases. If anyone wants to know how to do this feel free to PM me.Now on to part two, how well does ...

I am trying to see how serial correlation increases volatility (as compared to a simple LogNormal process with same parameters) when I simulate stock prices.

<t>I am currently using a Lognormal model for stock prices:dS/S = (Mu)dt+(Sigma)dWNow when I look at monthly log return series (historical return data), I can observe serial correlation (0.1-0.2). In order to obtain the serial correlation I simple find the correlation betwee r(t) and r(t+1) series.H...

<t>Thanks, this is what I wanted to know. Dave, by correct I meant that I would never have derived the price of a Swaption as that of a EU Cash Settled Swaption with F as the discount rate had I not been told that that is the convention. I can think of no mathematical argument for using F as the sin...

<t>Hi Dave,Yes, Dr. Wilmott is indeed assuming Cash Settlement whereas my derivation is for Physical Settlement. If I use F (Forward Swap Rate) as the discount rate in my derivation then I do get the Cash Settlement formula. The confusion I have is that the two values for the swaption are clearly no...

<t>Hi,I have a question related to Black 76 pricing equation for Swaptions. In Wilmotts book the formula for a Swaption with 6 month payment exchange for underlying swap is given as:exp(-r(T-t))((1-(1+F/2)^-2(Ts-T))/F)(FN(d1)-EN(d2)).Can someone please explain where one gets the term ((1-(1+F/2)^-2(...