- May 19th, 2016, 2:57 pm
- Forum: General Forum
- Topic: Unhedged options thought experiment
- Replies:
**16** - Views:
**1530**

<t>QuoteOriginally posted by: list1The question is about how we value the respective positions of the option and the trading (=delta1) desks. /// The original question was about that the Black Scholes formula is inappropriate in the case where assets are illiquid.So, moving to the valuation of the t...

- May 19th, 2016, 2:50 pm
- Forum: General Forum
- Topic: Algorithmic trading thought experiment
- Replies:
**6** - Views:
**909**

<t>QuoteOriginally posted by: Traden4AlphaQuote2. NPV of P&L trajectories: how much alpha does the trading algorithm produce? (May ignore the issues of overfitting, alpha dissipation, & EMH.) Suppose I buy FTSE futures currently trading at 6,100. I convince you that I am a brilliant trader, ...

- May 19th, 2016, 12:16 pm
- Forum: General Forum
- Topic: Algorithmic trading thought experiment
- Replies:
**6** - Views:
**909**

<t>QuoteOriginally posted by: Traden4AlphaIf the value of the inception trade is non-positive, then why do it? Because I have a strong belief the algorithm will generate profits! Perhaps you do to, and you have given me margin money to support the trades. But the question was how should the trading ...

- May 19th, 2016, 7:07 am
- Forum: General Forum
- Topic: Algorithmic trading thought experiment
- Replies:
**6** - Views:
**909**

<t>This post is stand alone, but can be read in conjunction with my other thought experiment post on option valuation.I build a trading algorithm based on historical prices of asset X, and which makes a decision to trade based on price for X observed at 16:00 every day. I implement the decision in t...

- May 19th, 2016, 5:21 am
- Forum: General Forum
- Topic: Unhedged options thought experiment
- Replies:
**16** - Views:
**1530**

<t>QuoteOriginally posted by: bearishQuoteOriginally posted by: frolloos@OP: how will the delta 1 desk (you call it trading desk) then hedge Its synthetic long exposure to the underlying? I am not following the thought experiment.I think you are following it just fine. The problem is indeed that eff...

- May 18th, 2016, 12:38 pm
- Forum: General Forum
- Topic: Unhedged options thought experiment
- Replies:
**16** - Views:
**1530**

<t>It is often argued that the Black Scholes formula is inappropriate in the case where assets are illiquid, or cannot be short sold etc. Is this correct? Consider the following thought experiment.Asset X is illiquid and cannot be short sold, but there are market observable bid offers from which we ...

- May 16th, 2016, 5:54 pm
- Forum: General Forum
- Topic: Is quant finance over?
- Replies:
**34** - Views:
**3053**

QuoteOriginally posted by: GamalI was recently promoted. To a completely non-quantitative position and that's because there are no executive positions for quants or at the best very few. Congratulations on the promotion by the way

- May 6th, 2016, 1:35 pm
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: CollectorI am happy to see that we agree that the Black Scholes model is very robust at the university campus. Most university campuses ignored empirical studies of fat-tails in price data for 70 years and will likely use another 70 years to understand the delta hedging...

- April 25th, 2016, 12:39 pm
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: complyorexplainQuoteOriginally posted by: list1Quoteand to complete the picture what does it mean " ... , but the distribution is not 'normal' in any sense" ?For example, simulate a price series where the underlying starts at 100, ...

- April 25th, 2016, 11:30 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: bearishQuoteOriginally posted by: complyorexplainQuoteOriginally posted by: list1Quoteand to complete the picture what does it mean " ... , but the distribution is not 'normal' in any sense" ?For example, simulate a price series where the underlying starts at 100, goes ...

- April 25th, 2016, 10:06 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: list1Quoteand to complete the picture what does it mean " ... , but the distribution is not 'normal' in any sense" ?For example, simulate a price series where the underlying starts at 100, goes up to 105, then back to 100, then up to 105 again, and so on for as long as ...

- April 24th, 2016, 7:39 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: daveangelsorry I don't understand...are you saying you simulate the process, work out the terminal value of the option and then discount back to 0 ?No. I am simulating exactly what an option trader would do when valuing their book, using an 'option account' and a 'hedge...

- April 24th, 2016, 6:41 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
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<t>QuoteOriginally posted by: daveangelQuoteOriginally posted by: complyorexplainOh another thing. I was talking earlier about the 'log' in 'lognormal'. But you don't need the 'normal' as far as I can see. You can simulate a price that starts at 100, then goes up by some percentage x, then down to a...

- April 22nd, 2016, 6:59 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>Oh another thing. I was talking earlier about the 'log' in 'lognormal'. But you don't need the 'normal' as far as I can see. You can simulate a price that starts at 100, then goes up by some percentage x, then down to a 100, then up by x, and so on, so that the whole distribution consists of just...

- April 22nd, 2016, 6:49 am
- Forum: General Forum
- Topic: Two option myths?
- Replies:
**36** - Views:
**3651**

<t>QuoteOriginally posted by: HansiQuoteOriginally posted by: complyorexplainAh! And Paul Wilmott himself discusses the question in Paul Wilmott Introduces Quantitative Finance, section 6.6, except Google books chopped off the next page, frustratingly.If you are in London you can have my copy.Thank ...

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