<t>Hi all,I know N(d1) is the probability of the call option ending in the money when the numeraire is the underlying stock, and N(d2) is the corresponding probability when the numeraire is the risk-free asset.But I wonder if there is any explanation given to N(d1) - N(d2) (hopefully an intuitively ...

<t>QuoteOriginally posted by: manolomHello, Duration is the relation between a change of price of the bond and a change in its yield. A FRN starting today is always worth 1, irrespective of interest rates, so its duration must be 0. For a FRN that has already begun, the next payment is that of a kno...

<t>Thanks acastaldo. Good point!Outright purchase (sale) of securities by the Fed will undoubtedly increase (decrease) money supply, and could have possibly replaced the repo market as a policy tool.In fact, this leave rather permanent changes to the money supply (or just generally liquidity) than r...

<t>Hi, Cut to the chase, repo is secured borrowing as the name suggests (repurchase agreement) and the counterparty to it is said to be on the reverse repo side. The repo market is populated by banks and money market funds, and a small set of primary dealers that mainly handle business with the Fede...

<t>QuoteOriginally posted by: AlanThink of it in terms of bids and asks and you can probably answer your own question.Alan, could you enlighten me on this a little further? Are you saying it's only verifiable by looking at the data, or suggesting a theory that postulates some conditions in which dee...

<t>QuoteOriginally posted by: rmaxQuoteOriginally posted by: deepdish7QuoteOriginally posted by: daveangelQuoteOriginally posted by: deepdish7Quotethis was not the cpty hedging desk ... this is the CIO. the invest the firms assetsexactlyexactly what ? How is this the same as counterparty exposure ma...

<t>Thanks everyone. It's much clear now. Now, maybe the third most frequently asked questions but hope you don't mind: under what circumstances is a deep ITM American put exercised early?I know in theory it's optimal not to exercise prematurely for American calls on non-dividend paying stocks at all...

<t>Just a quick question guys. What happens to an American (and an European) deep in-the-money put option if the company defaults?Upon default, theoretically, the stock price falls to zero, doesn't it?Then, should a holder of the American option exercise to capitalize on it or does it automatically ...

<t>Maybe I'm the only one not getting it right, but please kindly help me understand this issue...I read from an article it was supposed to be a hedge while the WSJ article someone posted the link to says it's not an hedge. If JPM invested in some highly rated securities using their excessive deposi...

<t>Hi all, It is often said liquidity risk premium can only be positive for cash instruments, such as bond and equity.Could anybody explain in detail as to why? Has it got to do with the statement that in a derivatives market (CDS or options/futures), should there be any illiquidity, the liquidity p...

Yes most likely so in a normal circumstance, and the spread will be relatively narrow.But how would a market maker respond to order flows in an unusual circumstance?I can think of most other cases than when it's extremely illiquid (less order flows) but with little order imbalance.

<t>Hi all, As many would agree, one of the the fundamental differences in microstructure between cash and derivatives markets is that, in a derivatives market, one can open either a long or a short position with little constraint (i.e., the supply is nearly infinite), whereas in a cash market, the s...

<t>Thanks DavidJN. 1) I was supposing the yields (YTMs) being the same with the same time left to maturity, so yes coupons/prices can be different. Then this will automatically translate to different durations. So sounds like you mean i) it's ok to have different rates on the same time-to-maturity p...

<t>Hi all, My questions are basically two folds, concerning term structure of zero-coupon rates and constant maturity swaps - specifically constant maturity Treasury swaps.1) This may be unlikely in reality, but suppose there are 2- and 3-year Treasury bonds, both maturing in 1 year from now. When w...

<t>Just two quick questions:1. why is your radon-nikodym derivative (i.e., M_T) multiplication of two radon-nikodym derivatives for S(t) and v(t)?2. how did you derive this?: a (b-v) -> a (b-v) + sqrt(v) ( rho k h(t) + sqrt(1-rho^2) g(t) ) - this somehow looks like the premium for volatility risk th...