complyorexplain - I'd appreciate more insight into the insurance mindset.  A few years ago, a Canadian bank failed miserably offering a deposit note that emulated a common insurance company product. The bank priced the note as they intended to replicate/hedge it, and the resulting pricing wasn't att...

Had a really bad quarter, eh? Seriously though, the world is awash in data and I cannot see that as the problem. What we are seeing is more likely irrational exuberance conditioned by the past successes of the Republicans at stealing elections.

In the 1-factor HW model, the idea is to simulate the short rate path and use the analytic equations to generate the discount bond prices and such given the short rate, vol, and mean reversion.  

Are you doing this primarily for pricing or exposure measurement purposes? 

Wasn't the usual solution strategy for parametric VaR to map the portfolio cash flows to standardized tenors that one can find a covariance matrix for? This was explained with examples in the original Riskmetrics technical documentation.

When the tool in your toolbox is a hammer, every problem looks like a nail.

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...

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

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...

When tackling the bond futures, make sure you understand the cheapest-to-deliver options.

Spread options are a well researched topic.

For example: https://www.mathworks.com/help/fininst/examples/pricing-european-and-american-spread-options.html

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...

“ 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...

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. 

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...