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by DavidJN
May 20th, 2020, 11:30 am
Forum: General Forum
Topic: Barrier option pricing method
Replies: 4
Views: 594

Re: Barrier option pricing method

When the tool in your toolbox is a hammer, every problem looks like a nail.
by DavidJN
April 28th, 2020, 3:28 pm
Forum: General Forum
Topic: Delta contribution to an options premium in terms of BSM
Replies: 14
Views: 1432

Re: Delta contribution to an options premium in terms of BSM

The answer was provided in the first response to your post by Alan. I'll repeat it here: "If a function is the sum of two functions, so are its derivatives. (google: linear operator)." You are decomposing the total option premium into two parts - intrinsic value and time premium. No one uses the ter...
by DavidJN
April 22nd, 2020, 3:10 pm
Forum: General Forum
Topic: Why do bond investor use par-par asset swap ?
Replies: 3
Views: 780

Re: Why do bond investor use par-par asset swap ?

You want to download the paper Introduction to Asset Swaps by Dominic O'Kane, Lehman Brothers. 

https://www.deriscope.com/docs/AssetSwaps_LehmanBrothers_2000.pdf
by DavidJN
March 24th, 2020, 10:33 pm
Forum: General Forum
Topic: List of Funds
Replies: 3
Views: 2971

Re: List of Funds

Seeing as correlations are typically computed using historical data (more on that in a moment), I wouldn't be inclined to bet the shop on any such numbers in the current environment as we're surely experiencing some kind of stochastic regime shift at present. Having said this, Markit's consensus pri...
by DavidJN
March 24th, 2020, 3:23 pm
Forum: Technical Forum
Topic: Modified Duration
Replies: 4
Views: 2299

Re: Modified Duration

When tackling the bond futures, make sure you understand the cheapest-to-deliver options.
by DavidJN
February 5th, 2020, 7:18 pm
Forum: Technical Forum
Topic: Hedging with a different underlying - bond options case
Replies: 3
Views: 1688

Re: Hedging with a different underlying - bond options case

If the underlying bonds do not trade at all it would be a challenge to find highly correlated tradeable bonds as hedge candidates because without trade how would you ascertain the correlation? Methinks more market specifics are required.
by DavidJN
January 29th, 2020, 8:59 pm
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 2387

Re: Implied/Realised Volatility Ratio for Negative Rates?

If one compares an apple to an orange there should be no surprise that they're not the same.  When talking about swaptions, one is naturally interested in the behaviour of forward-starting par rates corresponding to the swaptions in question. I think that is the point you are making. Given a complet...
by DavidJN
January 28th, 2020, 4:28 pm
Forum: General Forum
Topic: Implied/Realised Volatility Ratio for Negative Rates?
Replies: 11
Views: 2387

Re: Implied/Realised Volatility Ratio for Negative Rates?

“ As you approach the maturity of a swaption, the points of the yield curve that forms the swap rate  are not fixed.  Those points start sliding toward time=0.”   How is aging of bespoke swaps relevant when one is dealing with the implied vols of ATM par swap rates that are quoted as a constant matu...
by DavidJN
January 22nd, 2020, 8:17 pm
Forum: Student Forum
Topic: Dimensionality of Monte Carlo
Replies: 14
Views: 2191

Re: Dimensionality of Monte Carlo

Thanks for looking at this. My thinking too was to equate dimensionality with the number of state variables.

Having said this, might path dependency complicate things? Prepayments, knock-ins/outs and the like?

I was thinking of dt as constant, sorry if not clear. 
by DavidJN
January 21st, 2020, 7:45 pm
Forum: Student Forum
Topic: Dimensionality of Monte Carlo
Replies: 14
Views: 2191

Dimensionality of Monte Carlo

I am unclear on the concept of dimensionality when it comes to using Monte Carlo for option valuation and what I am reading has unfortunately not made things any clearer.   Starting as simply as possible, simulating the terminal price at option maturity of a single underlying in one time step jump f...
by DavidJN
November 7th, 2019, 5:50 pm
Forum: General Forum
Topic: Volatility of B from correlation with another asset A
Replies: 3
Views: 1851

Re: Volatility of B from correlation with another asset A

A concrete example of your problem faced frequently by middle offices would be the following - you have two traded assets so they both have a historical price and return history. One asset has liquid options traded on it but the other has none. Your front office wants to trade an option on the asset...
by DavidJN
November 7th, 2019, 5:37 pm
Forum: Technical Forum
Topic: Margin calculation when collateral is in different currency
Replies: 2
Views: 2240

Re: Margin calculation when collateral is in different currency

Think of it as a cheapest to deliver option.
by DavidJN
November 5th, 2019, 11:47 pm
Forum: Book And Research Paper Forum
Topic: New paper -- Option-based Equity Risk Premiums
Replies: 7
Views: 4491

Re: New paper -- Option-based Equity Risk Premiums

Alan, my work was a failed attempt at a PhD thesis at what I consider to be a then narrow minded and unprofessional department in one of Canada's universities. I had bought data from the CBOE and had positive empirical results. Anyway, rather than continue trying to reason with a brick wall, I just ...
by DavidJN
November 1st, 2019, 1:23 pm
Forum: Book And Research Paper Forum
Topic: New paper -- Option-based Equity Risk Premiums
Replies: 7
Views: 4491

Re: New paper -- Option-based Equity Risk Premiums

I've only just downloaded your paper, so these are only my first thoughts. In a similar vein to Ross Recovery, you are imposing structure on utility to frame the  model. Why no mention of Ross? Or Peter Carr?  In the late 1980's I took a rather different and arguably more direct approach that impose...
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