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by DavidJN
December 7th, 2020, 3:29 pm
Forum: General Forum
Topic: Hypothetical Portfolio Exercises
Replies: 2
Views: 497

Re: Hypothetical Portfolio Exercises

The HPEs are used to, among other things, inform regulators about marked inconsistencies in the treatment of RWAs across firms. As a practical matter, the major impediments to publishing the details of HPEs are the restrictions the data vendors have placed on the use of such data. Redistribution is ...
by DavidJN
December 1st, 2020, 4:21 pm
Forum: Technical Forum
Topic: Converting a swap spread to a different day count
Replies: 1
Views: 525

Re: Converting a swap spread to a different day count

Yes, that is the procedure, for those who might want to know
by DavidJN
November 30th, 2020, 6:33 pm
Forum: Technical Forum
Topic: Converting a swap spread to a different day count
Replies: 1
Views: 525

Converting a swap spread to a different day count

I have an applied question for any swap traders out there. Scientists are please encouraged to not hijack the thread.    Say you have a bespoke single currency interest rate swap that pays X BPS on the fixed side semi-annual 30/360, against 3M LIBOR plus a Y BPS spread act/360 on the floating side. ...
by DavidJN
November 12th, 2020, 2:11 pm
Forum: Careers Forum
Topic: Moving to the buy side
Replies: 4
Views: 726

Re: Moving to the buy side

I would imagine the money is less. And you'd have to work among people who have dated and even incorrect ideas about pricing (I am thinking specifically of insurance here). Trying to change that mindset is a steep hill to climb. Good luck. 
by DavidJN
October 20th, 2020, 4:21 pm
Forum: General Forum
Topic: sigma root (T-t)
Replies: 86
Views: 4746

Re: sigma root (T-t)

I brought a more formal approach to modeling options when I joined a trading desk in the early 90’s, but the old school guys I sat with were fond of using analogies to explain certain facets of option trading. The analogy they used for the sigma root T term was as follows. To compute bond accrued in...
by DavidJN
October 14th, 2020, 10:43 pm
Forum: General Forum
Topic: sigma root (T-t)
Replies: 86
Views: 4746

Re: sigma root (T-t)

https://quant.stackexchange.com/questio ... ot-of-time

They characterize the square root of time rule as a property of geometric Brownian motion. How well it applies to the real world is another story.
by DavidJN
October 14th, 2020, 10:26 pm
Forum: General Forum
Topic: sigma root (T-t)
Replies: 86
Views: 4746

Re: sigma root (T-t)

People have also wondered about the propriety of a similar time scaling technique in the VaR world, namely, scaling VaR calculations made with daily data to longer time intervals (sometimes 10 days is used). This is a very similar problem to the one you posed, and it has been discussed a fair bit in...
by DavidJN
October 14th, 2020, 2:37 pm
Forum: General Forum
Topic: sigma root (T-t)
Replies: 86
Views: 4746

Re: sigma root (T-t)

Get thee any introductory text on derivatives. Kindergarten level questions should please be posted in the Student Forum.
by DavidJN
October 5th, 2020, 3:43 am
Forum: Numerical Methods Forum
Topic: What are the boundary conditions for the Forward contract PDE?
Replies: 45
Views: 2802

Re: What are the boundary conditions for the Forward contract PDE?

Maturity date boundary condition: Suppose you are long a forward contract obliging you to buy the underlying at price $X at some specified maturity T.   If the underlying price, S, is strictly non-negative, then the payoff at T is Max[S – X, -X]. Since by assumption the underlying has a minimum pric...
by DavidJN
October 4th, 2020, 10:13 pm
Forum: Numerical Methods Forum
Topic: What are the boundary conditions for the Forward contract PDE?
Replies: 45
Views: 2802

Re: What are the boundary conditions for the Forward contract PDE?

The intent of pointing out the delta 1 thing was to suggest that the boundary conditions for the forward should be quite similar to the that of the spot. BTW are there any embedded deliver options? 
by DavidJN
October 4th, 2020, 3:38 am
Forum: Numerical Methods Forum
Topic: What are the boundary conditions for the Forward contract PDE?
Replies: 45
Views: 2802

Re: What are the boundary conditions for the Forward contract PDE?

I'll try to be less cryptic. Why price a simple forward contract in such a complicated fashion when no-arbitrage considerations relative to the underlying prices make delta 1 product valuation nearly trivial.  
by DavidJN
October 4th, 2020, 3:33 am
Forum: Numerical Methods Forum
Topic: What are the boundary conditions for the Forward contract PDE?
Replies: 45
Views: 2802

Re: What are the boundary conditions for the Forward contract PDE?

Um… forwards are delta 1 products, right? They move more or less dollar for dollar with the underlying. They can have positive or negative market values. Is this triggering any insight? 
by DavidJN
August 23rd, 2020, 7:47 pm
Forum: General Forum
Topic: Odd result
Replies: 26
Views: 1838

Re: Odd result

I could see a 'correct' model producing garbage output when supplied with garbage input. Good argument validation would take care of that particular one. Anyway, the result with the negative of the put price emerging from a BS call formula supplied with a negative vol is in a paper by Rolf Poulsen f...
by DavidJN
August 21st, 2020, 5:17 pm
Forum: General Forum
Topic: Odd result
Replies: 26
Views: 1838

Re: Odd result

Lots of unusual results have been derived. For example, if you put a negative vol into the BS call price formula you get the negative of the put price.
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