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by figaro
September 12th, 2018, 12:53 pm
Forum: Trading Forum
Topic: Correlation & Volatility - what returns period to use ?
Replies: 4
Views: 295

Re: Correlation & Volatility - what returns period to use ?

Well it is not the same thing, is it? Say these two time series. [img]data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAeAAAAEgCAIAAADjXjd2AAAgAElEQVR4nO3d328Tabon8PmXuJncjNBZKVppgjSCvWCJhNBwkW0dIS6WaHKMEMpkhxzBNmgIE3n7RC2fw4/TjPjR04YFJYjNEWySpm1Ih2RICHhDiGMgENtJObFdKezaizf95KV++a0fripXvh/5gnHsSqE558s7...
by figaro
August 24th, 2018, 9:14 am
Forum: Trading Forum
Topic: Hedging oil ETF using Airlines ETF
Replies: 4
Views: 373

Re: Hedging oil ETF using Airlines ETF

Airlines tend to hedge their fuel exposure, so the correlation will typically be quite low. To second order, high oil prices mean high inflation, and that has all sorts of knock-on effects. Also, hedging-a-commodity-with-a-commodity-linked-industry is the wrong direction. Like taking long term depos...
by figaro
August 24th, 2018, 8:40 am
Forum: Technical Forum
Topic: Models of random orders in full market depth order book
Replies: 3
Views: 168

Re: Models of random orders in full market depth order book

Well, it is still the same underlying problem. In all cases, your process is: - select random time dT - select random price level S - select random quanitity Q - select random action 0 (add liquidity) or 1 (subtract liquidity) - in case of subtract liquidty, check that you are not subtracting more t...
by figaro
August 23rd, 2018, 1:04 pm
Forum: Technical Forum
Topic: Models of random orders in full market depth order book
Replies: 3
Views: 168

Re: Models of random orders in full market depth order book

2 sounds like a typical newbie overkill. So you end up with 5 probability distributions. Or 10. Each of them has presumably at least two parameters. Some maybe more. What do you calibrate them to? What does the copula look like? Can you even distinguish between a "good" and "bad" point in the parame...
by figaro
July 26th, 2018, 8:58 am
Forum: Trading Forum
Topic: Jump models in practice
Replies: 27
Views: 1317

Re: Jump models in practice

There is a paper by Carr et al (2004) on "local" jump processes, in the sense of local volatility. The idea is to take any jump process and pass it through a "local" function to bootstrap it to option prices. They use time change - the idea is that jumps arrive faster when volatility is higher, slow...
by figaro
June 20th, 2006, 3:59 am
Forum: Student Forum
Topic: Question on futures / commodities
Replies: 2
Views: 100715

Question on futures / commodities

Depends on the commodity. There is a liquid spot contract for gold.
Not for everything though. For oil contracts, for example, the quote is for the rolling front future (eg CL1 & CN1 on nymex).

by figaro
June 2nd, 2006, 11:20 am
Forum: Student Forum
Topic: Correlation Skew
Replies: 3
Views: 106958

Correlation Skew


Andersen, L., Sidenius, J., and Basu, S. (2003) All hedges in one basket, Banc of America Securities, New York.
I think it came out in the Risk magazine.

by figaro
May 29th, 2006, 6:01 pm
Forum: Technical Forum
Topic: Pricing inflation linked option
Replies: 14
Views: 108151

Pricing inflation linked option

<BR><BR>Quote 3% indicative. It is different - if you were buying, it would be 50bps...<BR><BR>Why do you insist on a semi-analytical formula - as a check, presumably?<BR><BR>To elaborate on slym's point - at first order this is a put on libor struck at inflation forward + a fudge factor - because o...
by figaro
May 29th, 2006, 6:17 am
Forum: Technical Forum
Topic: Pricing inflation linked option
Replies: 14
Views: 108151

Pricing inflation linked option


Depends on whether you are buying or selling.
by figaro
May 28th, 2006, 10:03 am
Forum: Technical Forum
Topic: Pricing inflation linked option
Replies: 14
Views: 108151

Pricing inflation linked option


I quoted 1% lognormal historical mid. Who is selling it to you at 100bps normal?

by figaro
May 21st, 2006, 6:29 pm
Forum: Technical Forum
Topic: Stochastic correlation model
Replies: 20
Views: 182967

Stochastic correlation model


A simple rule of thumb is to mesaure the convexity of your payout with respect to correlation and work out what the convexity adjustment would be for the vol of correlation that you have in mind. Anything more involved than that, and you might as well be pricing using tarot readings.

by figaro
May 21st, 2006, 6:25 pm
Forum: Technical Forum
Topic: term structure of real interest rates and inflation
Replies: 4
Views: 104616

term structure of real interest rates and inflation


I second farmer on this. If you hedge with inflation swaps, model the full curve.

The us inflation curve really is pretty flat at the moment, but it is up to you whether you want to bet that it will stay flat or model its full term structure and hedge accordingly.


by figaro
May 21st, 2006, 6:16 pm
Forum: Technical Forum
Topic: Pricing inflation linked option
Replies: 14
Views: 108151

Pricing inflation linked option


By inflation, do you mean the us cpi index or something like that? With vol around 1%, probability of it going negative in less than 10y is negligible.

by figaro
May 4th, 2006, 8:34 pm
Forum: Numerical Methods Forum
Topic: Dupire & Local Vol MCS
Replies: 8
Views: 114441

Dupire & Local Vol MCS

<BR>Unfortunately I don't have a copy of Rebonato at hand, so I have no idea. Can you reproduce?<BR>I would expect zero rates or the short rate in this context, but I don't know is the short answer.<BR><BR>Fermion - give him a break. He asked a clear question about implementation, any textbook can t...
by figaro
April 11th, 2006, 2:29 pm
Forum: Numerical Methods Forum
Topic: How to simulate a term structure based on jump-diffusion model?
Replies: 6
Views: 112129

How to simulate a term structure based on jump-diffusion model?

<BR>allenishands:<BR><BR>Look into their references, especially Schoenbucher's work on LMM for defaultable markets. Also, in other threads there is some discussion of good references for LMM (BGM) - I don't think your reference does anything substantially different on that front.<BR><BR><BR>cosmolog...
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