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by bearish
May 4th, 2011, 12:45 pm
Forum: General Forum
Topic: Is the exchange rate a numeraire?
Replies: 4
Views: 21138

Is the exchange rate a numeraire?

<t>The traditional practice when doing cross-currency modeling is to use the money market account in a chosen currency as the numeraire asset. Alternatively you can use a zero coupon bond of a given (sufficiently long) maturity or the value of a strategy where you roll investments in shorter term de...
by bearish
April 28th, 2011, 10:17 am
Forum: Student Forum
Topic: Up-and-out put option price with Strike = Barrier
Replies: 4
Views: 20902

Up-and-out put option price with Strike = Barrier

You need a few more assumptions: zero interest rates, zero dividends, and a continuous process for the stock price. Then you can replicate the option with a semi-static strategy, where you only trade at inception and either when you hit the barrier or, if the barrier is not hit, at maturity.
by bearish
April 26th, 2011, 1:12 pm
Forum: Student Forum
Topic: Duration Question??
Replies: 10
Views: 20356

Duration Question??

The difference between the various duration measures is pretty trivial, as long as you don't mix and match them in the same application. They are all just variations on a crude and simple measure of interest rate risk.
by bearish
April 26th, 2011, 10:22 am
Forum: Student Forum
Topic: bond option
Replies: 3
Views: 20193

bond option

<t>Jamshidian's solution is easy to implement for the Vasicek model (he developed it for the time dependent parameter version of the model, which many authors lay claim to), but it is not completely "analytical" in that you need a numerical root finder to determine the critical level of the short ra...
by bearish
April 26th, 2011, 10:15 am
Forum: Student Forum
Topic: Duration Question??
Replies: 10
Views: 20356

Duration Question??

Makes no sense to me. Duration measures the sensitivity of a bond price to it's yield, or perhaps more usefully, to a parallel shift in the term structure of interest rate. It is used as a first order measure of interest rate risk.
by bearish
April 25th, 2011, 1:54 am
Forum: General Forum
Topic: pre/post 1987 volatility smile
Replies: 17
Views: 23169

pre/post 1987 volatility smile

<t>QuoteOriginally posted by: FermionQuoteOriginally posted by: bearishThe other thing worth noting is that the idea of a volatility smile only makes sense in the context of a particular model, so there is nothing terribly fundamental or philosophical about it unless you assign a very special status...
by bearish
April 25th, 2011, 1:27 am
Forum: General Forum
Topic: Wiener
Replies: 1
Views: 19351

Wiener

<t>It is not so much wrong as a little sloppy and incomplete. The statement that all non-overlapping increments are independent and normally distributed with mean zero and variance equal to the length of the increment is more precise and, as you point out, implies that W(t) is distributed as N(0,t)....
by bearish
April 24th, 2011, 12:33 am
Forum: Student Forum
Topic: Delta of a call in FX
Replies: 11
Views: 21377

Delta of a call in FX

<t>Calls and puts are the same thing, its just more obvious in FX. If you have the right to exchange EUR 100 for USD 150, this can be viewed as a call on USD or a put on EUR. The same way, what you think of as a call on IBM can equally well be construed as a put on the dollar, but this is less natur...
by bearish
April 23rd, 2011, 1:22 am
Forum: Economics Forum
Topic: Money Supply and the Quantitative Easing Measures
Replies: 13
Views: 38881

Money Supply and the Quantitative Easing Measures

<t>Yes, there seems to have been about 27 people demonstrating (back in February). The most dramatic statement uttered on the tape was "ja til gull" (yes to gold). The youtube video had various commentaries overlaid involving Ron Paul and the like, but it is not clear that this has any bearing on th...
by bearish
April 23rd, 2011, 1:07 am
Forum: Student Forum
Topic: Stochastic Volatility and independent increments
Replies: 7
Views: 114909

Stochastic Volatility and independent increments

Yes, I agree.
by bearish
April 23rd, 2011, 1:01 am
Forum: Careers Forum
Topic: Advices to get full time
Replies: 6
Views: 20871

Advices to get full time

OK - I'll stick my neck out. What would you like to do? Where do you think you have comparative advantages? Do you even have a choice of which area(s) to work in?
by bearish
April 22nd, 2011, 5:55 pm
Forum: Student Forum
Topic: Stochastic Volatility and independent increments
Replies: 7
Views: 114909

Stochastic Volatility and independent increments

<t>If the pair (Y,Z) forms a standard 2-dimensional Brownian motion, then you don't need your additional assumption on X. The increments of X will be the weighted sum of increments of Y and Z. Let s>t. Now, Y(s)-Y(t) is independent of Y(t), since Y is a BM; Y(s)-Y(t) is independent of Z(t) because Y...
by bearish
April 22nd, 2011, 5:47 pm
Forum: General Forum
Topic: pre/post 1987 volatility smile
Replies: 17
Views: 23169

pre/post 1987 volatility smile

<t>The other thing worth noting is that the idea of a volatility smile only makes sense in the context of a particular model, so there is nothing terribly fundamental or philosophical about it unless you assign a very special status to one model. As an example, a given set of option prices will prod...
by bearish
April 21st, 2011, 6:37 pm
Forum: Careers Forum
Topic: performance bonus
Replies: 2
Views: 20744

performance bonus

<t>I don't have specific experience with this from hedge funds, which are likely to be more idiosynchratic in their compensation behavior than large organizations, but in my experience a hard guarantee does not usually leave much room for upside. At any rate, you should not make a major career decis...
by bearish
April 20th, 2011, 4:06 pm
Forum: Student Forum
Topic: Flat forward interpolation
Replies: 2
Views: 24185

Flat forward interpolation

<t>Flat forward interpolation of curves, whether in interest rate or CDS space, simply corresponds to piecewise constant forward rates (risk neutral hazard rates for CDS), typically chosen to jump at each maturity date in the dataset you are fitting. They are used (at least occasionally) for two rea...