SERVING THE QUANTITATIVE FINANCE COMMUNITY

Search found 26 matches

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by fyvr
September 29th, 2020, 5:17 pm
Forum: Technical Forum
Topic: bond futures vs CTD yield conundrum
Replies: 0
Views: 430

bond futures vs CTD yield conundrum

The Dec20 Bund contract trades at 174.46 - this is the price of a hypothetical 6% 10yr bond, with a yield of -1.04%. The CTD yields -0.59%... that's 45 bp away! For a pair of bonds of the same credit and same maturity! Now I know there are distortions - YTM ignores term-structure (but the curve is p...
by fyvr
August 25th, 2020, 2:48 pm
Forum: Technical Forum
Topic: option delta
Replies: 13
Views: 4637

Re: option delta

Who would you rather go into quantitative finance? A bunch of mathematicians who couldn't trade their way out of a paper bag?
by fyvr
August 25th, 2020, 2:43 pm
Forum: General Forum
Topic: Odd result
Replies: 26
Views: 1367

Re: Odd result

1. yes, probably
2. technical term for a harmonic oscillator
by fyvr
August 25th, 2020, 10:39 am
Forum: Technical Forum
Topic: option delta
Replies: 13
Views: 4637

Re: option delta

"Consider a stock price process of the BSM form, except that the first time the stock price hits the level H its volatility permanently doubles."

This is unphysical.
by fyvr
August 25th, 2020, 10:32 am
Forum: General Forum
Topic: Odd result
Replies: 26
Views: 1367

Re: Odd result

I disagree fairly profoundly. my progression was theoretical physics -> quant -> trader, and the longer I spent in the industry the more convinced I became about the importance of a feel for the physics of option trading. I actually became slightly notorious when interviewing people for trading desk...
by fyvr
August 24th, 2020, 4:54 pm
Forum: Technical Forum
Topic: option delta
Replies: 13
Views: 4637

Re: option delta

Just look at the physics! Not the first derivatives or the N(d1). there are two extrema - (1) S =1, K = 99, T = 1mo... this option is worthless and will expire worthless. It has no sensitivity to S, i.e. the delta = 0. (2) S =999, K = 99, T = 1mo. This option will be exercised, you are going to own ...
by fyvr
August 24th, 2020, 4:44 pm
Forum: General Forum
Topic: Black Scholes Merton PDE
Replies: 10
Views: 5221

Re: Black Scholes Merton PDE

The continued existence of a 45 year traded market in the solutions to the PDE is itself a guarantee of uniqueness.
by fyvr
August 24th, 2020, 4:38 pm
Forum: General Forum
Topic: TRS sensitivities
Replies: 1
Views: 749

Re: TRS sensitivities

To first order, the deltas should be the same - if the yield goes from 3% -> 3.01%, the price move is what it is , irrespective of whether the yield shift was due to the Treasury curve moving or the credit spread. But there's a an extra effect that destroys the symmetry - as credit spreads move, the...
by fyvr
August 24th, 2020, 4:20 pm
Forum: General Forum
Topic: VaR for a life insurance company
Replies: 10
Views: 1044

Re: VaR for a life insurance company

The 'valuation under P or Q' issue is a tricky one, it might be clear for dealers (it's Q) but it's not at all clear for commercial exposures. Suppose you are a commercial bank with a $100 million loan book, and the regulator says "what's your EL on a 5yr horizon?".  The correct answer depends on wh...
by fyvr
August 24th, 2020, 4:09 pm
Forum: General Forum
Topic: Odd result
Replies: 26
Views: 1367

Re: Odd result

"dS/S  = rdt + sig dW dS/S = rdt - sig dW give the same option value" Of course, but this isn't a SDE/PDE thing, just look at the physics. (1) starts at S0 and jiggles around like up-down-up-down, and (2) starts at S0 and jiggles along like down-up-down-up. The dynamics they describe are identical,...
by fyvr
May 2nd, 2020, 2:14 pm
Forum: General Forum
Topic: Nobel prize contributions and the birth of implied volatility
Replies: 12
Views: 2528

Re: Nobel prize contributions and the birth of implied volatility

"Quants provide a crucial function in finding theoretical values for exotic OTC products. I never disputed this or challenged this." Well you ought to, because (given that you are specifically referencing exchange-traded options) it's nonsense. If stock XYZ 3M ATM calls are trading at $2.50, that d...
by fyvr
May 2nd, 2020, 1:51 pm
Forum: General Forum
Topic: How to select the IR curve to discount cash flows?
Replies: 5
Views: 3137

Re: How to select the IR curve to discount cash flows?

This is a subtle issue, but here goes with the bare bones. You should be able to convince yourself that the correct rate to discount future cashflows, in generality, is your effective cost of funding. But what is this? 1) for perfectly collateralised trades, it is a fact (not especially obvious at f...
by fyvr
May 2nd, 2020, 1:33 pm
Forum: General Forum
Topic: Why do bond investor use par-par asset swap ?
Replies: 3
Views: 2683

Re: Why do bond investor use par-par asset swap ?

Short answer (there are longer ones): the par-par ASW spread is a 'pure' credit number, in the same way that a CDS spread, or the spread on a par-priced FRN, is. Therefore it is of considerable utility from a relative-value perspective, if all bond prices are expressed as par-par asset swap spreads ...
by fyvr
May 1st, 2020, 4:38 pm
Forum: General Forum
Topic: Delta contribution to an options premium in terms of BSM
Replies: 14
Views: 3541

Re: Delta contribution to an options premium in terms of BSM

Pilgrim, the reason people are getting frustrated is that your question is meaningless. The delta does not "affect" the MTM value, it is a derivative of the MTM value. If the MTM (option premium, in your words) changes between T0 and T1 - which it is likely to do, for a whole host of possible reason...
by fyvr
May 21st, 2019, 7:07 pm
Forum: Technical Forum
Topic: Bermudan swaption misprice
Replies: 2
Views: 4077

Re: Bermudan swaption misprice

Depends a bit on the strike. The street is long up the wazoo berm vol from callables (so bid is super-soft), but massively short at ultra-low strikes from selling low-strike CMS floors as pension ALM hedges. If you’re looking at an ATM (or close) strike I’m not surprised  you found that the market b...
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