<r>QuoteOriginally posted by: CBQuoteOriginally posted by: brusselsQuoteOriginally posted by: CBWell CB do you know that with last year's bonus, I have as much money on my bank account as 3 years of a university professor salary. And with that I am on the bottom of the ladder. Next year my bonus cou...

<t>QuoteOriginally posted by: CBbrussels,Do not you worry that one day you would be laid off as of market going down? Do not you worry about the instability of industry?As I know, pure mathematicians tend to want to prove everthing in very rigorous ways and be very suspicious about everything. But t...

<t>QuoteOriginally posted by: CBFrom your experience, how should a PhD student do to succeed in academia?Well, my experience in academia was everything but successful so I am not sure I am the best reference. What I would say, and that may be true more in my field (pure maths) than others (physics f...

<t>Epicurus: let me give you my point of view. I always loved maths and lived for maths (e.g. international maths olympiads). I chose to do pure maths at uni, and when I started my PhD (in maths) I thought I would do an academic career. The PhD turned out to be very disappointing for me and not very...

<t>I may be rephrasing all the other answers but without writing equations you can see that if there is no volatility you are sure to end ITM (since you are already) but, as you increase volatility the chance of ending below K increases (hence the prob of ending ITM decreases).If you started OTM you...

<t>Hye,practitioners seem to look at their hedging costs in a different way than put in books:- in books, when considering hedges, one often looks at the cost of the (hedge) option and compare it to the cost of the option sold. Ex: selling a digital at 100 and hedging it with a call spread 99-100- p...

<t>Moto:another way to look at 'Is Black&Scholes correct' is to observe market prices for calls (let's say for a given maturity T) and consider that those prices are be correct. Given that the calls usually do not all have the same volatility, it means that B&S is not correct. You can derive...

<t>Hye,I found a cute trick for proving the relationship between theta and vega for a European option (when r=0 and no dividends)For such an option, the price C depends on (t,vol) only through vol^2*t. (t=time to maturity, vol=volatility)So if d(vol^2*t)=0 then there is no price change. This can be ...

<t>QuoteOriginally posted by: MokHello, I am looking for some article or info regarding the impact in the hedging P&L of a vanilla option depending on the path the underlying took during the life of the option. I mean, if you buy a vanilla call at 20% vol and after that the stock moves with 30% ...

<t>QuoteOriginally posted by: FlexI had the same problem. The problem is this sentence:"So these ups and downs make the stock lose -1/2*sigma^2*T "A gbm is a random process, therefore you can't do such a statement . You can say: on average.You're totally right. Maybe I could remake my statement:Thes...

<t>I think you are mistaking two things1) The stdev of one simulation, which is 3.22) The stdev of the average of N simulations, which is 3.2/sqrt(N)You can run as many simulations as you want, your 3.2 will not get much lower (possibly more precise), however 3.2/sqrt(N)->0 of courseTo take an analo...

<t>I tried to get an intuition for the -1/2*sigma^2*T drift in a geometric brownian motion.Of course, this can be obtained by Ito's Lemma, or otherwise by writing S(T)=S(0)*(1+sigma*sqrt(T/n)*g_1)*(1+sigma*sqrt(T/n)*g_2)*...*(1+sigma*sqrt(T/n)*g_n) and taking 'ln' and doing a Taylor development (N->...

<t>HyePlee: I like very much your explanation with N->infinity, 1/N->0 rather than dt->0. It is the same as the one that I used to understand why there is a exp(-1/2*sigma^2) drift in a geometric brownian motion and it makes thing more neat.Omar: I agree about your remarks with square roots. Taking ...

<t>Hye,I remember reading an intuitive proof of why dW^2=dt but I just realize there's a point I am missing:The proof says that given that dW=sqrt(dt)*N(0,1), we have dW^2=dt*N(0,1)^2, which impliesE(dW^2)=E(dt*N(0,1)^2)=dtVar(dW^2) ~ dt^2 ~ 0Given that we dismiss terms in dt^2. It means that dW^2 h...

Guys,I am very glad that my question triggered all these remarks, but I would like someone to explain me how this x=xi+(r-vol^2)*tau equation is related with the forward. I thought that the forward price is related to the spot in a way that is independent of vol?Thanks