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by bwarren
February 19th, 2012, 9:28 pm
Forum: Brainteaser Forum
Topic: an interview question, the probability of picking a seat randomly in a stadium
Replies: 12
Views: 22226

an interview question, the probability of picking a seat randomly in a stadium

Since the seat you are sitting in will never be removed, the probability does not change. The answer is 1/1000.
by bwarren
February 5th, 2012, 2:35 pm
Forum: Student Forum
Topic: Statistical significance in standard Monte Carlo
Replies: 3
Views: 14570

Statistical significance in standard Monte Carlo

<t>QuoteOriginally posted by: BerndSchmitzthanks! just to get this straightI calculateabs(mean(model1)-mean(model2)) - 2.576 * sqrt(variance(model1)+variane(model2))and if the values is larger than 0 then the models produce prices that are significantly different from each other at the 99% confidenc...
by bwarren
February 5th, 2012, 2:08 pm
Forum: Student Forum
Topic: Statistical significance in standard Monte Carlo
Replies: 3
Views: 14570

Statistical significance in standard Monte Carlo

<t>QuoteOriginally posted by: BerndSchmitzhey,I calculated some exotic option prices based on either a Heston-Stochastic-Volatility, Merton-Jump-Diffusion or Bates model by means of Monte Carlo simulation. Now I want to say something about whether the obtained prices are significantly different from...
by bwarren
December 26th, 2011, 7:15 pm
Forum: Student Forum
Topic: Drift in Options and Stocks
Replies: 2
Views: 15749

Drift in Options and Stocks

Drift is the expected return.
by bwarren
November 27th, 2011, 3:40 pm
Forum: General Forum
Topic: is volatility term structure of S&P500 options decreasing or increasing over maturities?
Replies: 2
Views: 16281

is volatility term structure of S&P500 options decreasing or increasing over maturities?

<t>There's no rule that says the term structure of volatility has to be increasing or decreasing, although the total variance must be nondecreasing. The skew tends to flatten out as you go to longer maturities, so in general, the vol term structure will be decreasing for lower strikes and increasing...
by bwarren
November 27th, 2011, 3:31 pm
Forum: Technical Forum
Topic: positive definite = correlation matrix?
Replies: 4
Views: 16652

positive definite = correlation matrix?

A covariance matrix must be positive-semidefinite and symmetric. In addition, a correlation matrix will only have values with absolute value <= 1 and 1's on the diagonal.
by bwarren
November 15th, 2011, 4:26 am
Forum: Brainteaser Forum
Topic: How many balls?
Replies: 31
Views: 29335

How many balls?

<t>QuoteOriginally posted by: wileyswok let me try again: there are n balls weighing respectively, 1, 2,..., n grams with their labels possibly misplaced. you, who have the complete info, need to perform couple of weighings on a balance so that your intelligent friend can label them correctly. how m...
by bwarren
November 5th, 2011, 4:53 am
Forum: Student Forum
Topic: Financial Math Programming HELP
Replies: 5
Views: 17362

Financial Math Programming HELP

In this case, you can virtually always make $1B, but Kelly does not apply because the goal is not to maximize wealth.
by bwarren
November 5th, 2011, 4:23 am
Forum: Student Forum
Topic: Financial Math Programming HELP
Replies: 5
Views: 17362

Financial Math Programming HELP

<t>Kelly says not to bet anything because you do not have an advantage. Winning $1B is virtually impossible, so I really doubt a simulation will give you the precision you're looking for.To maximize your chances, you want to choose a bet size that minimizes the number of wins required to get $1B. Fr...
by bwarren
October 30th, 2011, 11:32 pm
Forum: Student Forum
Topic: Implied volatility for call or put?
Replies: 6
Views: 17741

Implied volatility for call or put?

QuoteOriginally posted by: secret2So far as I know I don't think any theory requires that implied vol. for put = implied vol. for call.Put-call parity does for European options.
by bwarren
October 30th, 2011, 9:53 pm
Forum: Student Forum
Topic: Implied volatility for call or put?
Replies: 6
Views: 17741

Implied volatility for call or put?

There are really two prices, bid and ask. I would think the range of implied vols should overlap, or at least be very close to avoid arbitrage.
by bwarren
September 23rd, 2011, 6:46 pm
Forum: Technical Forum
Topic: Implicit autocorrelation in term structure of volatilities
Replies: 4
Views: 19319

Implicit autocorrelation in term structure of volatilities

QuoteOriginally posted by: ChurchHi,If a volatility term structure is decreasing, it implies a certain autocorrelation of the underlying variable.ThanksWhy is that?
by bwarren
September 23rd, 2011, 6:44 pm
Forum: Technical Forum
Topic: Options on total return indices
Replies: 7
Views: 22243

Options on total return indices

<t>QuoteOriginally posted by: UnowenIf one wants to price an option on a total return index, such as S&P 500 total return, and use Black Scholes, is it sufficient to set the dividend yield on the index to zero? If not, what should be used? Are the other inputs to the formula the same as if the u...
by bwarren
September 21st, 2011, 5:08 pm
Forum: General Forum
Topic: pricing risk in options
Replies: 7
Views: 19577

pricing risk in options

<t>QuoteOriginally posted by: persefoniwhat is the best way, if any, to determie the risk of a portoflio consisting of only options contracts (listed US Equity options).Is there any benefit in converting the contract size, into the equivalent number of shares (by multiplying the delta) and then usin...
by bwarren
September 15th, 2011, 7:23 pm
Forum: Student Forum
Topic: A simple problem
Replies: 19
Views: 17771

A simple problem

<t>QuoteOriginally posted by: daveangeli think you are probably correct but this is beyond the scope of the OP's question.OK, I would agree that it seems the purpose of the problem is to use Beta to find the expected return of the stock. We could just assume the volatility that is given does not inc...
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