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by DocToc
June 10th, 2016, 3:20 pm
Forum: General Forum
Topic: basic on no arbitrage pricing
Replies: 19
Views: 1562

basic on no arbitrage pricing

<t>so I think there are three things you are asking..1. You are asserting that hedge funds ignore cash and carry type args? that cannot be true.2. You want to know how hedge funds determine that there is value in a particular trade? there are a multitude of ways.3. prices are changing all the time? ...
by DocToc
June 10th, 2016, 2:50 pm
Forum: General Forum
Topic: basic on no arbitrage pricing
Replies: 19
Views: 1562

basic on no arbitrage pricing

ok - are you just asking about why a hedge fund would buy or sell a particular derivative and how they would come to this conclusion?
by DocToc
June 10th, 2016, 1:54 pm
Forum: General Forum
Topic: basic on no arbitrage pricing
Replies: 19
Views: 1562

basic on no arbitrage pricing

list1, not sure what you mean. BUT, in general you price something by how you can hedge it i.e. eliminating the market risk. if you understand cash and carry args then why are you trying to re-invent the wheel?
by DocToc
February 22nd, 2016, 12:33 pm
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

normal vol = basis point vol = implied volatility which comes out of a model assuming asset returns are normally (rather than lognormally) distributed.
by DocToc
February 22nd, 2016, 8:15 am
Forum: Student Forum
Topic: Inconsistencies in using Black'76 for different IR derivatives
Replies: 3
Views: 1493

Inconsistencies in using Black'76 for different IR derivatives

<t>i am not mathematician and there are plenty of people better to answer this than myself. BUT i'll take a stab:A swap rate is a weighted average of forward rates. If you assume that the forward rates are lognormal then does it not suffice to prove that if this is so then a convoluted average of lo...
by DocToc
February 19th, 2016, 4:29 pm
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

<t>I give up sir. I have reached the conclusion that either a) or b) are true.a). I am misguided and definitely don't know enough maths to keep up with the symbols.b). You are misguided.I shall now drink myself silly.I still think having a short stint on a trading floor will help you understand what...
by DocToc
February 19th, 2016, 3:36 pm
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

<t>last attempt now:lets assume that you are talking about vanillas.option pricing models, whether it be BS or SABR or some funky stochastic model do not recommend prices. The market makes the price. models given the same vanilla inputs should give the same price for these instruments. the price com...
by DocToc
February 19th, 2016, 11:44 am
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

<t>how subjective/objective bid/offers are depends on many different things. I would argue that nearly all the time they are subjective as there are too many unknowns to be 100% certain and therefore there is always a degree of finger in the air-ness about making prices. This is what makes making a ...
by DocToc
February 19th, 2016, 10:01 am
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

<t>If market somewhat takes into account all future transactions then implied volatility and BS theoretical volatility would be different ofcourse, I think you would really benefit from a few days in a real trading environment, I think you will grasp some fundamental issues which you don't seem to g...
by DocToc
February 18th, 2016, 12:48 pm
Forum: Numerical Methods Forum
Topic: Transformation of Black vol to Normal Vol
Replies: 29
Views: 4221

Transformation of Black vol to Normal Vol

list1 - you don't really believe that people sit in front of their screens trading options believe in BS dynamics/assumptions do you?BS is nothing more than a translation mechanism
by DocToc
February 17th, 2016, 12:56 pm
Forum: Student Forum
Topic: Daycount basis of broker quotes of cms swaps
Replies: 7
Views: 2125

Daycount basis of broker quotes of cms swaps

so there is a published fixing a 10y swap say with act360 vs 3m EURIBOR act360?
by DocToc
February 17th, 2016, 11:00 am
Forum: Student Forum
Topic: Daycount basis of broker quotes of cms swaps
Replies: 7
Views: 2125

Daycount basis of broker quotes of cms swaps

why don't you ask an options/exotics broker from there - they will be able to confirm. I would assume its 30/360 though as the CMS has to fix to something and this is usually ISDA which is 30/360 vs act360
by DocToc
February 16th, 2016, 9:44 am
Forum: Trading Forum
Topic: Scalping profit
Replies: 6
Views: 3153

Scalping profit

<t>ok I'd start by doing 4 - just to make sure that given some very volatile "simulated" path your code/model can actually generate a profit - just to make sure that there is no error in its set up.also I would try to price an option on this underlying using this simulation and the gamma trading set...
by DocToc
February 15th, 2016, 4:46 pm
Forum: Trading Forum
Topic: Scalping profit
Replies: 6
Views: 3153

Scalping profit

<t>1. given whats happened in the market over the last month/two there may be a substantial vol risk premium and therefore even if the index has been moving around a lot you've paid too much for the options.2. are you measuring your vega P&L too?3. What transaction costs are you assuming? maybe ...
by DocToc
February 15th, 2016, 12:41 pm
Forum: Trading Forum
Topic: Scalping profit
Replies: 6
Views: 3153

Scalping profit

<t>what asset class are you talking about?are you just trading close to close? if no-one could "scalp" well enough to at least break even then surely the option is too expensive and therefore should be sold right and therefore its price should be a lot lower? also, what time period is your historica...
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