- cosmologist
**Posts:**640**Joined:**

QuoteOriginally posted by: frenchXThat's a very interesting topic. At the moment I'm reading a review about superhedging by Davis Hobson. That's nice since you don't take care of the model but the superhedging price will be SO HUGE than no one will enter the contract.When you are pricing exotics by superreplication you are assuming that you are infinite risk averse (for any affine model you can be safe).Another approach to that is the utility based pricing (where you assume that you want to bear some risk).Modelling the market in PHYSICAL sense is in my view a nice idea. I have read a thesis about a guy who modelled the crude oil by a multi agents model based on economical argument and it fits very well the market. For me the real question is the link between the underlying price and the option one. Assuming only a link through their vols is maybe false.A lot of work and I'm very happy to see that some people working in banks begin to ask themselves those questions @Alan; if you are interesting into hedging a barrier option, I can send you a paper of Carr about semi static hedging (it's a static hedging which is rebalanced if the option knocks). Here a paper http://www.math.nyu.edu/financial_mathe ... -2.pdfHave a look at the theorem 5.5Sorry for this statement BUT this is true. I can prove it.As far as crude price is concerned, it is purely based on "Cornering of the market based on a Significantly flawed contract design" . It should not trade as it is trading today. This contract is a joke.

Why do you mean Cosmologist ?Could you please clarify a bit (or at least to say what is the thing you can prove)?

Last edited by frenchX on May 19th, 2011, 10:00 pm, edited 1 time in total.

is it a case of science (models) without strategy is but ruin of the wallet, ruins and tears as well as science (models) without purpose/conscience that is the ruin of the soul.trading exotics is now recongnised as a prop trading business so what is the question about? market risk basel 2 ? or trading without tears?

Last edited by oislah on May 29th, 2011, 10:00 pm, edited 1 time in total.

Any movement on this?

I have seen two weeks ago a talk in Paris about model risk by using Kullback divergence to quantify the distance "between a model to a reference one". The problem is :-it's not a real metric because A to B is not equal to B to A -what is a reference model?Calibration and model risks are very hot topic nowadays for academic researchers.

is it a hot topic with a lot of hot air. put aside maths and emh and all that. it is about selling a product at market price and making sure you are not loosing money. it is about hedging strategy. ok so you come up with model 1, model 2, model 3..which one performed better historically for exisiting products. for new products which one would have performed better historically..if unhappy with history create a simulation model type mandelbrot realistic enough to benchmark your models. then ask yourself.. is there any any overlooked risk ? is my strategy always viable ? what can go wrong? feedback to your models, backtest, compare, etc..

Last edited by oislah on June 30th, 2011, 10:00 pm, edited 1 time in total.

QuoteOriginally posted by: frenchX I have seen two weeks ago a talk in Paris about model risk by using Kullback divergence to quantify the distance "between a model to a reference one". The problem is :-it's not a real metric because A to B is not equal to B to A -what is a reference model?Calibration and model risks are very hot topic nowadays for academic researchers.And what about your planned solution, how far did you get with that?

QuoteOriginally posted by: TinManQuoteOriginally posted by: frenchX I have seen two weeks ago a talk in Paris about model risk by using Kullback divergence to quantify the distance "between a model to a reference one". The problem is :-it's not a real metric because A to B is not equal to B to A -what is a reference model?Calibration and model risks are very hot topic nowadays for academic researchers.And what about your planned solution, how far did you get with that?At the moment I'm working on Put Call Symmetry (the Carr method for static hedging) in uncertain volatility model in order to obtain robust super or sub replication hedges. I have talked about uncertain stochastic volatility with the speaker at the convention and he was interested. I'm currently writing my PhD but if I have some time left I will try to program it (btw I need an heston solver for another idea so I have to in fact).And you Tinman what is your opinion and your best practice in this domain given you are an experienced practitioner ?

QuoteOriginally posted by: frenchX At the moment I'm working on Put Call Symmetry (the Carr method for static hedging) in uncertain volatility model in order to obtain robust super or sub replication hedges. I have talked about uncertain stochastic volatility with the speaker at the convention and he was interested. I'm currently writing my PhD but if I have some time left I will try to program it (btw I need an heston solver for another idea so I have to in fact).And you Tinman what is your opinion and your best practice in this domain given you are an experienced practitioner ?I'm not proposing alternatives to the status quo, I'm looking for quantification from those who do suggest an alternative.

What comes after Section 49.6? Inquiring minds want to know.

Critical mass not reachedP

QuoteOriginally posted by: PaulCritical mass not reachedPYou know way more about social media than I do, obviously. You are right, it is not worth your time until you have a buzz going.I went to a FundingPost event where they had a panel discussion. Someone asked the people on the panel what they were investing in. They all talked about the social media companies they were funding. Another clever question from the audience was whether or not they thought social media was being overhyped. They all looked at each other trying to figure out who would go first. According to them, it is underhyped. Of course they are putting their money in it, but they seemed to think people were underestimating the size and diversity of the potential market. Typing google.com and getting 95% of your revenue from ads isn't going to happen forever.

GZIP: On