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by Orbit
January 6th, 2018, 7:51 pm
Forum: General Forum
Topic: Hull-White in MATLAB - which vol surface to use
Replies: 2
Views: 755

Re: Hull-White in MATLAB - which vol surface to use

I'm not familiar with the MATLAB function you're using, but it seems to me that if the model you are using is normal (i.e. the short rate r(t) is distributed normally), as it is in the Hull-White model, then you would want the normal vols. Black vols are lognormal.
HTH
by Orbit
December 19th, 2017, 7:07 pm
Forum: Economics Forum
Topic: stealed money in Rio
Replies: 15
Views: 2443

Re: stealed money in Rio

It might be interesting to present value of stealing goods and money dynamically in Rio
How would the present value of stealed goods and money be different than the present value of regular goods and money?
by Orbit
December 19th, 2017, 6:59 pm
Forum: General Forum
Topic: Which model for which fixed-income product?
Replies: 4
Views: 1488

Re: Which model for which fixed-income product?

The general rules: A. The calibrated model has to simultaneously price the deal AND it's hedging instruments           --- when you hedge (and re-hedge!) a deal, you are really selling the opposite deal           --- it's largely irrelevant whether the model correctly prices other deals or deal typ...
by Orbit
December 19th, 2017, 6:57 pm
Forum: Student Forum
Topic: Volatility Trading using European Vanilla Options
Replies: 3
Views: 959

Re: Volatility Trading using European Vanilla Options

What do you think is the best model for trading volatility using only European Vanilla Options and the underlying? And why? I think it depends on what you mean by "model." If you mean a description of volatility and ts representative "vega" on vanilla Europeans then I would say plain old Black-Scho...
by Orbit
December 19th, 2017, 6:51 pm
Forum: General Forum
Topic: variance of process S(t)
Replies: 3
Views: 658

Re: variance of process S(t)

Thanks fellas!
I appreciate your comments. I thought perhaps there might be some trick or unexpected point of view that would yield some help, but I think I'm stuck.
by Orbit
December 17th, 2017, 7:05 pm
Forum: General Forum
Topic: Question - Principles of Financial Engineering (Neftci)
Replies: 1
Views: 838

Re: Question - Principles of Financial Engineering (Neftci)

In a word, sort of. Consider the market for Eurodollars, which is vast. This is a loan market for US Dollars when the counterparties are two non-US banks. The generalization that he is making is when as asset "belonging" to economy A is being traded by two parties that are outside of A.
by Orbit
December 17th, 2017, 7:02 pm
Forum: General Forum
Topic: variance of process S(t)
Replies: 3
Views: 658

variance of process S(t)

Consider the process
[$]dS(t)=\mu(S)dt+\sigma S(t)dW(t)[$]
where [$]\mu(S)[$] is unknown or unknowable. This means a strong solution for [$]S(t)[$] is probably not in the cards.
What is the variance of [$]S(t)[$]? Any generalization or clues?
Thank you in advance Wilmottians
by Orbit
May 18th, 2017, 3:55 pm
Forum: Student Forum
Topic: Why changing measure is necessary?
Replies: 23
Views: 2119

Re: Why changing measure is necessary?

By the way I think you're kind of a nut case. Nothing personal.
Is this your baptism of fire? :-D Most of us have been there..
LOL. I'm done trying to get him to have a "light bulb moment." I now regard his stuff as nothing other than humor. Sometimes it's pretty good, actually
by Orbit
May 18th, 2017, 3:52 pm
Forum: General Forum
Topic: Random Walks In Force Fields
Replies: 23
Views: 2614

Re: Random Walks In Force Fields

To the OP, the correct understanding of a net average drift on a stochastic process is that the particle in question is under the influence of an electric or magnetic field (whichever is relevant to the situation).
by Orbit
May 18th, 2017, 3:49 pm
Forum: General Forum
Topic: Random Walks In Force Fields
Replies: 23
Views: 2614

Re: Random Walks In Force Fields

I agree with Traden4Alpha - Brownian motion is based on the idea that the motion of the particle is based on a sort of "law of large numbers" description of the motion of the particle, having been influenced by a huge number of unseen and un-model-able forces. The real modeling begins when we descri...
by Orbit
May 18th, 2017, 1:49 am
Forum: Student Forum
Topic: Why changing measure is necessary?
Replies: 23
Views: 2119

Re: Why changing measure is necessary?

As you noted that the original solution did not used measure change then measure change was not used to get BSE solution. This is primary logic. Look, I hate to be the one to break it to you, but the original BSE has a measure change in it, and it happens whether you like it or not. It's the reason...
by Orbit
May 17th, 2017, 8:31 pm
Forum: Student Forum
Topic: Why changing measure is necessary?
Replies: 23
Views: 2119

Re: Why changing measure is necessary?

list1, the OP question was "I want to understand the logic for why this is." Then he quoted a passage. I answered him thoroughly and correctly. It's to do with measure change. Your follow-on posts are very close to nonsensical. It's true the BSE solution originally did not explicitly use a measure c...
by Orbit
May 17th, 2017, 12:35 am
Forum: Technical Forum
Topic: Calibration G2++ Swaption ATM
Replies: 4
Views: 957

Re: Calibration G2++ Swaption ATM

Not sure about the meaning of your error measurement. But in theory you should be able to fit the existing curve bang-on using G2++. Using a skew model such as SABR is a big deal and I'm not sure this approach lends itself well.
by Orbit
May 17th, 2017, 12:26 am
Forum: Student Forum
Topic: Why changing measure is necessary?
Replies: 23
Views: 2119

Re: Why changing measure is necessary?

we do not switch measure. original correct derivation did not use it and mention about probability measure. B&S showed that no arbitrage pricing should use sde which corresponds to ( r , [$]\sigma^2[$] ) heuristic random process which could not be associated with any sock. Switching measure is math...
by Orbit
May 16th, 2017, 12:12 am
Forum: Student Forum
Topic: Index options change to individual stock variance and corr
Replies: 6
Views: 977

Re: Index options change to individual stock variance and corr

Right, to echo frolloos , the implication is that the index option is really a "basket option." In the case of most indices (such as the S&P500), the correlation matrix is huge: 500x500, which is very unstable and likely doesn't really exist. Another problem with this is that each stock has its own ...
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