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by gjlipman
September 18th, 2008, 8:59 pm
Forum: General Forum
Topic: The Role of Spreadsheets in the Collapse of the Financial Markets
Replies: 28
Views: 53626

The Role of Spreadsheets in the Collapse of the Financial Markets

<t>That quote from the FSA, I'd be curious if there are any investment banks out there that it couldn't apply to. Everyone is concerned about spreadsheets, and should be, but at the end of the day, faulty (or no longer applicable) assumptions will cause banks to lose money, whether in a spreadsheet,...
by gjlipman
September 18th, 2008, 5:50 am
Forum: Student Forum
Topic: Can anyone explain this?
Replies: 7
Views: 49123

Can anyone explain this?

It is to do with the formula for the N(x). There is an appendix to the BSM chapter of Hull that goes through a similar exercise - have a read through that and you should be able to apply the same logic to this formula.
by gjlipman
September 17th, 2008, 5:39 am
Forum: General Forum
Topic: The Role of Spreadsheets in the Collapse of the Financial Markets
Replies: 28
Views: 53626

The Role of Spreadsheets in the Collapse of the Financial Markets

<t>Not wanting to downplay the importance and risk of spreadsheets, I haven't seen anything to indicate that it was the spreadsheets that caused, or even contributed to the current problems. My feeling it is more about the assumptions within the spreadsheets - models, probabilities and spreads, etc....
by gjlipman
September 15th, 2008, 4:04 pm
Forum: Student Forum
Topic: Basic question about BS formula
Replies: 4
Views: 49147

Basic question about BS formula

If you're trying to prove that S(0) e^[(r-d)T] N(d1) is the expected value of the what we get, the most intuitive proof to me is the one given in the appendix to the chapter "The B-S-M Model" of Hull. It isn't trivial, but straight forward enough when you read it.
by gjlipman
September 14th, 2008, 10:54 am
Forum: Student Forum
Topic: pricing commodity derivatives
Replies: 6
Views: 49523

pricing commodity derivatives

<t>Sorry - I'm not so used to modelling the convenience yield directly - I tend to just take the futures curve as given, and assume convenience/storage are whatever it takes to get that shape.But if you look on the web, some of the papers (like Schwartz and Smith) do go into a bit more detail on the...
by gjlipman
September 14th, 2008, 6:44 am
Forum: Student Forum
Topic: pricing commodity derivatives
Replies: 6
Views: 49523

pricing commodity derivatives

<t>I consider buying spot to mean that you pay a sum of money, and you receive physical barrels of oil. Obviously this does exist, but due to the physical difficulties of receiving/delivering physical barrels of oil, this is done a lot less frequently than trading futures (which stop trading about 2...
by gjlipman
September 13th, 2008, 9:27 am
Forum: Careers Forum
Topic: how much job hopping is too much?
Replies: 1
Views: 48745

how much job hopping is too much?

<t>Once in 2 years isn't excessive, but you'll want to be careful to say things that don't paint you as too quick to move.I would look at rewording your reason. Did you get more money when you left? If so, then emphasise that you got a better offer, somewhere that could make better use of your skill...
by gjlipman
September 13th, 2008, 5:32 am
Forum: Student Forum
Topic: Basic question about BS formula
Replies: 4
Views: 49147

Basic question about BS formula

<t>I find the best thing to do when looking at these sorts of questions is to think extremes. Imagine we've got a really out of the money option, so N(d1) is really low, as will be S(0) e^(-dT) N(d1) e(rT) .This is consistent with definition 1. Yet, definition 2 can't possibly be less than K, so it ...
by gjlipman
September 12th, 2008, 11:13 am
Forum: Student Forum
Topic: pricing commodity derivatives
Replies: 6
Views: 49523

pricing commodity derivatives

<t>If there was only one traded asset (the spot) then your market would be incomplete. As it happens in oil, the spot itself is never traded - instead people trade futures (including the prompt which is sometimes considered a proxy for spot).Imagine you're only able to trade two futures - one is the...
by gjlipman
September 11th, 2008, 5:20 am
Forum: Technical Forum
Topic: Valuing Commodity Swap
Replies: 6
Views: 55779

Valuing Commodity Swap

<t>What I'd recommend is that you write down exactly what the client is paying and receiving. eg which contract, when it is set, when it is settled. You get such a range of these swaps that it is difficult to generalise. But, when pricing a swap, you should be referring to the futures prices that th...
by gjlipman
September 9th, 2008, 9:17 pm
Forum: Student Forum
Topic: Reading Vols off a Vol Surface
Replies: 4
Views: 50003

Reading Vols off a Vol Surface

<t>You could assume a vol for it, calculate the delta, and see if that vol is the vol you'd get if you interpolated based on that delta. If not, adjust your vol, and keep doing it until you get a vol that satisfies.I know it is iterative, but it at least satisfies. Other alternatives might be decidi...
by gjlipman
September 7th, 2008, 11:35 am
Forum: General Forum
Topic: After BA/MA, what's next?
Replies: 5
Views: 49704

After BA/MA, what's next?

<t>You'd be lucky to get a quant job with that background, and a PhD in business admin (even combined with finance) isn't really going to help - you really need a lot more focus on the quantitative skills.So if you want to have a good chance of making reasonable money, I'd settle for something that ...
by gjlipman
September 6th, 2008, 4:06 pm
Forum: Student Forum
Topic: what is the defference between volatility and variance
Replies: 4
Views: 49754

what is the defference between volatility and variance

<t>Not really sure I understand your followup question. So at risk of not answering your question and just saying more statements that confuse matters:Often when people talk about volatility, they are assuming the Black Scholes model (of constant volatility), so there is a function that converts fro...
by gjlipman
September 6th, 2008, 2:12 pm
Forum: Student Forum
Topic: what is the defference between volatility and variance
Replies: 4
Views: 49754

what is the defference between volatility and variance

<t>Variance (and similarly standard deviation) is a statistical term - it is a measure of the spread of a variable. So, for example, you might talk about the variance of the stock price at time T, or more commonly, the variance of the log return of the stock price from time t to T. Variance can be c...
by gjlipman
September 5th, 2008, 8:59 am
Forum: Student Forum
Topic: Black's Model, which one?
Replies: 2
Views: 48842

Black's Model, which one?

<t>Hmmm - if you don't pay the premium up front, is that expression right (ie that you discount X but not F)?For example, if we had an option with a delta of 1 and a low discount factor, would it really have a premium of F?Or should it be { F * N ( d1 ) – X * N ( d2 ) }My suspicion is that the first...
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