<t>What do you think of the TOTEM contribution for Equity correlation ?It is based on an historical evaluation. What I calibrated is that the contributors shift the historical correlation (log returns 5 days, deepness of the historical data : 3 to 5 years depending the bank) with a baricentric choc ...

<t>Hi Lenni,As far as I'm concerned, correlation term strucure applies to the equity basket products with an analogy to volatility. For instance, the 2Y correlation computed with the methodology you have chosen can not apply to a multi-underlyings 5Y properly as you will underestimate its level.From...

<t>Thank you for your quick reply Silver Surfer. I share your point of view.Do you agree that if the Probability of Failure is 1%, you get exactly a measure of VaR 99% 1 Day with the Stress Test you suggest ? What if I have 10% for the Probability that the deal breaks ?I think most banks do not well...

Hi,How would you calculate a VaR on a Risk Arbitrage position, given the probability of succes of the merger and the Downside of the target ?Thanks in advance for your help.Best regards,

<t> Hello Commoditytrader,Thank you for your answer and I did enjoy your topic about implied distributions (especially the Long -Short Gamma according to the Variance Ratio of Erstwhile : brilliant + the wine/frog legs trading remarks !!).In the article attached, I see a concrete way to get the impl...

<t>Hi there,I have just read the article from Joe Z Zou Valuing Options on Baskets of Stocks and Forecasting the Shape of Volatility Skews, and the method described looks very attracting.Here we transform the historical log-returns distribution into an implicit one by :1/ condition to fit the forwar...

Anyone to help me ?

<t>Hi,Most traders on funds options mark the volatility using benchmarks (true only if the fund can be benchmarked of course !!) :As, Return Fund = Beta . Retun Index + Error, we deduce for SE and thus historical volatility,Vol Fund²=Sqrt(Beta².Vol Index² + Vol Error²)But this relation works for his...

<t>Hello,Very simple :- your inputs : volatility for the 4 indices (within hisorical measure you just have to add their trend) their correlation, and that's it !!What you have to compute :- 4 independent gaussians (Excel makes it for you) - multiply the paths by the VCV matrix Hope this helps, I can...

<t>Hello,I think the Gap option you mention is rather cheap. Even on the S&P (low vol), the market would price at higher level :Ex : Gap Option 3Y SX5E Resetting 82% Cliquet PutEurib3m +20/+30 bpsThe equivalent in terms of % of notional would be in that particular case more than 10% !!I think th...

<t>Hello,You cannot price it as an option on a basket of equity as you will not know live what is the composition (secret of the AM !).I suggest two methods :- find possible benchmarks whenever possible (R squared will tell you how good your regression is). In this case you will have an estimation o...