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by erstwhile
September 23rd, 2019, 6:02 am
Forum: Technical Forum
Topic: Rate risk in high yield bonds
Replies: 2
Views: 2793

Re: Rate risk in high yield bonds

That is interesting, thanks. I expect implied probability of default and spread duration or OASD might be bigger concerns than rate risk.  
by erstwhile
September 22nd, 2019, 6:37 pm
Forum: Technical Forum
Topic: Rate risk in high yield bonds
Replies: 2
Views: 2793

Rate risk in high yield bonds

It’s well known that bonds trading at very high spreads empirically “lose their rate sensitivity” (compared to the standard model) - they act more equity-like empirically and of course if they are distressed enough start trading near the market view on recovery.  I was thinking that pricing a bond u...
by erstwhile
November 27th, 2015, 11:22 am
Forum: Technical Forum
Topic: Quanto option risk neutral measure interpretation?
Replies: 2
Views: 2266

Quanto option risk neutral measure interpretation?

<t>A more layman intuition type explanation comes from thinking about the hedge for a quanto option. Imagine you have sold a deep in the money call option on a Japanese stock quanto in USD. As it is deep in the money we ignore gamma and vega risk for the purpose of this explanation (not good risk ma...
by erstwhile
December 10th, 2014, 12:04 pm
Forum: Technical Forum
Topic: Copula implied by overlapping returns
Replies: 7
Views: 4448

Copula implied by overlapping returns

Excellent - thanks for this
by erstwhile
December 9th, 2014, 4:02 pm
Forum: Technical Forum
Topic: Copula implied by overlapping returns
Replies: 7
Views: 4448

Copula implied by overlapping returns

<t>Vladimir and AndrewK thanks for responding.Andrewk: yes the basic assumption was that of iid data. Interesting expression for [$]C(u_x, u_y)[$]. To make sure I am following the notation, let's take the case of iid Gaussian distributed returns, where we are taking one-day returns and creating over...
by erstwhile
November 28th, 2014, 8:35 am
Forum: Technical Forum
Topic: Copula implied by overlapping returns
Replies: 7
Views: 4448

Copula implied by overlapping returns

If I am asking a dumb question feel free to just say "dude this is obvious - it is the XYZ copula, just Google XYZ copula to find a paper."This just seems pretty interesting as it is a case where a copula is uniquely generated from a marginal distribution.Thanks
by erstwhile
November 22nd, 2014, 10:36 pm
Forum: Technical Forum
Topic: From a volatility index to a volatility surface
Replies: 12
Views: 4830

From a volatility index to a volatility surface

<t>Another approach might be a two step one: first, use Dupire's "breakeven vol" method (function BEVL in Bloomberg) to produce a vol surface for the SPX purely from SPX returns. Second, modify this structure in a way that forces it to fit the variance swap. Simple linear scaling is the simplest app...
by erstwhile
November 22nd, 2014, 10:29 pm
Forum: Technical Forum
Topic: Copula implied by overlapping returns
Replies: 7
Views: 4448

Copula implied by overlapping returns

Any speculation from the copula experts out there?
by erstwhile
November 20th, 2014, 10:44 am
Forum: Technical Forum
Topic: From a volatility index to a volatility surface
Replies: 12
Views: 4830

From a volatility index to a volatility surface

<t>If your portfolio has a material vega content then you need to do a better job than simple extrapolation of the vol surface. Your VaR will have a component which comes from the historical volatility of implied volatility. If you simply extrapolate the vol surface in a "non-volatile" way you will ...
by erstwhile
November 20th, 2014, 10:13 am
Forum: Technical Forum
Topic: From a volatility index to a volatility surface
Replies: 12
Views: 4830

From a volatility index to a volatility surface

<t>The VIX is like (but not equal to) a weighted average over all implied vols of a given expiration. Knowing an average doesn't tell you full info about what you have averaged over. You are still missing information about the skew at least. Knowing the variance and the ATM vols helps, as you can ge...
by erstwhile
November 20th, 2014, 9:08 am
Forum: Technical Forum
Topic: Copula implied by overlapping returns
Replies: 7
Views: 4448

Copula implied by overlapping returns

<t>We obviously try to avoid doing statistics on overlapping returns, but here is an interesting little tidbit that has turned up.If we had for example a two-day overlapping return series, so that returns come from data on day 1 to day 3, then day 2 to day 4, etc, the autocorrelation is of the order...
by erstwhile
April 3rd, 2013, 8:48 pm
Forum: Technical Forum
Topic: The VIX Index, a Variance Swap?
Replies: 7
Views: 14408

The VIX Index, a Variance Swap?

<t>At a well known investment bank in the late 90s, the bank bought vol via vol swaps from loads of clients. They were centralised in one book, where the vol derivs trader then sold the replicating basket for the nearest equivalent var swap to the related single index book (FTSE, SPX, DAX, N225, etc...
by erstwhile
March 30th, 2013, 7:25 pm
Forum: Technical Forum
Topic: Connection between alpha stable distributions and extreme value distributions
Replies: 8
Views: 8754

Connection between alpha stable distributions and extreme value distributions

Alan that was impressive, thanks - I need to let this connection sink in now...
by erstwhile
March 29th, 2013, 9:17 pm
Forum: Technical Forum
Topic: Connection between alpha stable distributions and extreme value distributions
Replies: 8
Views: 8754

Connection between alpha stable distributions and extreme value distributions

Yes - I reckoned one of you folks here would know the answer - or maybe there isn't a straightforward connection...
by erstwhile
March 29th, 2013, 7:57 pm
Forum: Technical Forum
Topic: Connection between alpha stable distributions and extreme value distributions
Replies: 8
Views: 8754

Connection between alpha stable distributions and extreme value distributions

Intuitively infinite variance really means that the longer your data sample the higher the variance. The Cauchy (Lorentz) distribution has infinite variance but has a well defined distribution of its maxima - I think it becomes the Gumbel distribution in the deep tails though.
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