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by Costeanu
September 25th, 2018, 6:02 pm
Forum: Book And Research Paper Forum
Topic: Introducing XGBM -- a new stochastic volatility model with some nice properties
Replies: 9
Views: 5017

Re: Introducing XGBM -- a new stochastic volatility model with some nice properties

Congrats Alan. It looks like you put a lot of work into this.  I like that the paper appears to be self-contained, no need for heat kernels on hyperbolic manifolds, geodesic distance and all that. Great job.  Now a quick question. You are saying it takes roughly ten times longer to price an option i...
by Costeanu
August 25th, 2015, 10:47 am
Forum: Technical Forum
Topic: Avoid negative interest rates in Hull White model
Replies: 12
Views: 35139

Avoid negative interest rates in Hull White model

Can you be more precise about this? Is the volatility a step function of time, or of the short rate, or something else?
by Costeanu
July 31st, 2015, 7:52 pm
Forum: Brainteaser Forum
Topic: Making Money on Zero Drift LogNormal Random Walks
Replies: 9
Views: 10382

Making Money on Zero Drift LogNormal Random Walks

<t>Another way of answering your question is that no, you can't make money. The stated assumptions are that the stocks themselves are driftless, so their SDE would look like dS = sigma S dW, not that their logs are driftless. If the stocks themselves are martingales, there is no way to systematicall...
by Costeanu
August 21st, 2014, 7:30 pm
Forum: Brainteaser Forum
Topic: Coint toss game
Replies: 16
Views: 11152

Coint toss game

If A gets tails, basically the game starts afresh, only that A is the second player now. The probability that the second player wins is P(B). So P(A|T) = P(B).
by Costeanu
December 20th, 2013, 7:13 pm
Forum: Numerical Methods Forum
Topic: Pricing Basket Options using Black-Scholes by BDF2 after using PCA for dimension reduction
Replies: 17
Views: 7815

Pricing Basket Options using Black-Scholes by BDF2 after using PCA for dimension reduction

<t>Hi radhikanangia, I didn't look at your code, and I don't think I will have time to. I have to say I like a lot the paper that you are trying to replicate.One thing: I don't think you need any finite differences. For the setup in the paper, quadrature is enough. I believe it will be much faster a...
by Costeanu
May 13th, 2012, 12:12 am
Forum: Brainteaser Forum
Topic: I read this forum too
Replies: 9
Views: 37525

I read this forum too

Looks like this entry created quite some stir on Hacker News. Lots of insightful comments.
by Costeanu
March 4th, 2012, 3:19 pm
Forum: Brainteaser Forum
Topic: exp(5) = [$]e^5[$]
Replies: 544
Views: 118282

exp(5) = [$]e^5[$]

<t>Here's a cute way to calculate exp(5). Use Stirling's formula: 5! ~ 5^5 * exp(-5) * sqrt(2*pi * 5)We get exp(5) ~ 625*sqrt(10 pi) / 24Now, one can argue that: 1. this calculation is hard to do by hand, and 2. it's a rough approximation anyway. 1. It so happens that this calculation is easy for so...
by Costeanu
June 24th, 2011, 12:24 am
Forum: Book And Research Paper Forum
Topic: Mortgage bible
Replies: 10
Views: 23250

Mortgage bible

It's probably less than what you are looking for, but it's a good start. As for Hull's book, I'm not sure who holds it in such high esteem. If you want a real good benchmark, that's Andersen and Piterbarg.
by Costeanu
June 23rd, 2011, 1:10 am
Forum: Numerical Methods Forum
Topic: CLO default correlation
Replies: 2
Views: 24155

CLO default correlation

<t>You should read about the "gaussian copula" credit model. It's quite famous, and it landed a place of honor on Paul's "Name and shame" list (some people think the gaussian copula caused the crisis). Observing a Bernoulli variable X (1 with p, 0 with 1-p) is the same as observing a normal variable...
by Costeanu
March 29th, 2011, 4:32 pm
Forum: Careers Forum
Topic: A tricky situation
Replies: 16
Views: 21506

A tricky situation

<t>The labor market may not be perfect, but it's not completely irrational either. It's supply and demand. If she gets any other competing offers, then her current pay is irrelevant; her MTM will be decided through an auction. If she doesn't, then the potential future employer has to compete only wi...
by Costeanu
March 16th, 2011, 4:17 pm
Forum: Student Forum
Topic: 3s versus 6s swap
Replies: 4
Views: 20629

3s versus 6s swap

<t>Saharasjj,Not sure I understand your question correctly, but I think you mean that one party pays 3y CMS rate (plus a spread) and the other pays 6y CMS rate (where CMS = constant maturity swap).If that is the case, you need to look into CMS pricing. It's possible to statically hedge a CMS with sw...
by Costeanu
March 14th, 2011, 3:21 pm
Forum: Careers Forum
Topic: Resign
Replies: 17
Views: 26876

Resign

That's a nice war story Quantmeh. Thanks for sharing.
by Costeanu
March 9th, 2011, 8:14 pm
Forum: Numerical Methods Forum
Topic: Seed value for Random Number Generator
Replies: 11
Views: 23050

Seed value for Random Number Generator

Good point. It makes sense to run the pricer several times with different seeds to see what the stdev of the error is. Also, it would be probably a good idea to do the same exercise for the hedges as well.
by Costeanu
March 9th, 2011, 2:36 pm
Forum: Numerical Methods Forum
Topic: Seed value for Random Number Generator
Replies: 11
Views: 23050

Seed value for Random Number Generator

<t>Well, how do you decide what part of the hedge is noise and what is the "true" hedge? People think that if your MC error is below, let's say 0.1bps (or some other arbitrary number), then you are close enough to the real price; the problem is that there is no real price. There is always model risk...
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