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by DavidJN
July 24th, 2020, 5:56 pm
Forum: General Forum
Topic: VaR for a life insurance company
Replies: 3
Views: 252

Re: VaR for a life insurance company

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...
by DavidJN
July 9th, 2020, 7:08 pm
Forum: Economics Forum
Topic: Absense of data is creating markets in 'suspended animation'
Replies: 4
Views: 1359

Re: Absense of data is creating markets in 'suspended animation'

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.
by DavidJN
July 7th, 2020, 3:22 am
Forum: General Forum
Topic: Hull White Simulation
Replies: 2
Views: 1059

Re: Hull White Simulation

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? 
by DavidJN
June 19th, 2020, 10:00 am
Forum: Numerical Methods Forum
Topic: Parametric Value at risk for savings plan
Replies: 4
Views: 2101

Re: Parametric Value at risk for savings plan

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.
by DavidJN
May 20th, 2020, 11:30 am
Forum: General Forum
Topic: Barrier option pricing method
Replies: 4
Views: 2242

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: 3198

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: 2377

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: 4723

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: 4047

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: 2738

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: 4008

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: 4008

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: 3867

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: 3867

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...
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