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by Rotelli
November 4th, 2013, 5:42 pm
Forum: Careers Forum
Topic: IPV/Valuation vs Model Validation
Replies: 6
Views: 8085

IPV/Valuation vs Model Validation

<t>What is the difference between the work of IPV/Valuation teams and Model Validation? My understanding is that IPV teams mostly replicate the front office models, check their assumptions and limitations, the derivation of any equations used for pricing (unless the model is a mainstream one), the a...
by Rotelli
July 26th, 2011, 10:56 am
Forum: Technical Forum
Topic: FX forward pricing for illiquid currencies
Replies: 0
Views: 18656

FX forward pricing for illiquid currencies

How do banks normally price FX forward contracts against relatively illiquid currencies, for which covered interest rate parity may not necessarily hold?
by Rotelli
April 6th, 2011, 5:47 pm
Forum: Student Forum
Topic: Index options and dividend yield
Replies: 2
Views: 20471

Index options and dividend yield

From a purely theoretical point of view, is the dividend yield needed when pricing options on an index (e.g. FTSE or DAX) using the Black-Scholes model, or can it be assumed to be zero, since the underlying is a growth index which doesn't pay any dividends?
by Rotelli
February 28th, 2010, 10:42 am
Forum: Technical Forum
Topic: Fitting to prices vs fitting the smile
Replies: 1
Views: 30048

Fitting to prices vs fitting the smile

What is the difference between fitting the parameters of a model to option market prices (e.g. by a least squares minimization) and "fitting the smile"? What does this expression mean?
by Rotelli
June 19th, 2009, 2:39 pm
Forum: Technical Forum
Topic: Barrier Option Data
Replies: 3
Views: 38719

Barrier Option Data

<t>Thanks, but is it really possible to get reliable barrier option data from Bloomberg? I understand that most barrier options (in fact most FX options in general) are OTC, so I wonder if they really are available on Bloomberg, or if it's only possible to get them from a more specialised data provi...
by Rotelli
June 17th, 2009, 9:10 pm
Forum: Technical Forum
Topic: Barrier Option Data
Replies: 3
Views: 38719

Barrier Option Data

<t>I am writing some code to price and hedge barrier options using various approaches. Now I would like to test my code using real market data. I have access to Bloomberg at work, but I'm not an expert in using it. How can I get data from Bloomberg on liquid barrier options? I am interested in singl...
by Rotelli
June 6th, 2009, 8:27 am
Forum: Technical Forum
Topic: Milstein vs Euler
Replies: 3
Views: 39403

Milstein vs Euler

<t>But if they have the same order of weak convergence, why would Euler be any slower than Milstein?! In chapter 3 of "Tools for Computational Finance" Rüdiger Seydel looks at the convergence rate for the Monte Carlo pricing of a European option by simulating the processHe concludes that "applying t...
by Rotelli
June 5th, 2009, 9:46 pm
Forum: Technical Forum
Topic: Milstein vs Euler
Replies: 3
Views: 39403

Milstein vs Euler

<t>Are there any advantages in using a Milstein scheme vs an Euler one when calculating option prices via Monte Carlo? My understanding is that both are weakly convergent with order 1 (i.e. the sequence of expectations converges with order 1). Since to price an option you need to calculate an expect...
by Rotelli
May 27th, 2009, 7:32 am
Forum: Technical Forum
Topic: Cancellable Swap
Replies: 5
Views: 43898

Cancellable Swap

<t>How does one price a "cancellable swap", i.e. an ordinary swap in which one party has a Bermuda-style option to terminate the deal at mark-to-market? I have heard that if the termination is at mark-to-market this feature does not affect the PV of the swap and can effectively be ignored in pricing...
by Rotelli
December 4th, 2008, 8:15 am
Forum: Student Forum
Topic: Random variables and expectation
Replies: 1
Views: 45365

Random variables and expectation

How is it possible for a random variable to have almost everywhere but to also have I found this claim in a book. The way I understand it, if the first condition is satisfied then X is finite everywhere outside of a set of measure zero. So how can the expectation diverge?
by Rotelli
July 20th, 2008, 3:56 pm
Forum: Student Forum
Topic: Question about Forward Rates
Replies: 3
Views: 51457

Question about Forward Rates

<t>I have a very simple question about forward rates. Suppose I have the following continuously compounded spot rates:Year 1: 0.04Year 2: 0.04Year 3: 0.08From this, I calculate the following term structure of 1-year forward rates:1Y FR now: 0.041Y FR at year 1: 0.041Y FR at year 2: 0.16I now want to...
by Rotelli
April 15th, 2008, 7:26 pm
Forum: Student Forum
Topic: Definition of stochastic process
Replies: 2
Views: 56085

Definition of stochastic process

<t>In a book I am reading, a stochastic process is defined as a mapping (where is a probability space, T is an interval on the real line and R is the real line) such that for every t, the mapping is measurable. For each fixed the mapping is called a sample path.I can't reconcile this with the defini...
by Rotelli
April 15th, 2008, 6:55 pm
Forum: Numerical Methods Forum
Topic: Binomial and trinomial methods
Replies: 2
Views: 56858

Binomial and trinomial methods

<t>If you want to price an option using a binomial or trinomial method, is there a way to determine in advance the optimal number of steps for a given accuracy? How does one normally choose the number of steps when implementing these methods in practice?Another question about convergence: do these m...