Tag Info

Hot answers tagged

6

There is nothing in simple cubic spline fitting routines that would prevent arbitrage. Even with conscientious use of knot points and smoothing techniques you may end up with simple spread and local volatility arbitrage conditions. Stochastic volatility models on the other hand can explicitly constrain your solutions to prevent call/ put spread arbitrage at ...


3

Typically, strategists run a regression of changes in implied vols against changes in rates. If rates are highly directional with implied vols (regression coefficient is positive and statistically significant), then it would imply a more lognormal relationship. If the two series are not correlated or very weakly correlated, then the relationship is ...


2

These are relatively common, especially in convertible bonds. You are correct that the effective maturity of the bond becomes the call/put date. The reason for issuing them is fairly prosaic: a 10 year bond with a 3 year call/put date counts as a 10 year liability for accounting purposes, and of course a 3 year instrument for trading purposes. The latter ...


2

One of the most used interpolation techniques is the cubic spline interpolation. Here you can find an overview of that, while, on Mathworks.com, you can find the tutorial to implement that in Matlab directly simply by using the spline(x,Y,xx) command function. It is not difficult to implement and, moreover, it gives pretty reliable results. I never tried ...


1

I'm not sure that machine learning would lead to any practical solutions here. Do you really have enough data for that kind of techniques? I would suggest a different approach: assume that the exercise is optimal, but just based on a different cost function than the expected pay-off. If you can find a function that replicates well enough the past exercise ...


1

Your question is too broad, but I there is plenty of examples of uses of machine learning to mimic human behaviour. For instance deep learning has been used 25 years ago to read checks in banks, or support vector machines 15 years ago to implement artificial vision, or bayesian networks to mimic expert diagnosis. I guess it would not be that hard to use ...


1

American options pricing (swaption is just a kind of option) is a bit tricky due to the early exercise. Here is a page listing possible approaches, including some numeric methods, and some close form approximation formula. As I understand, lattice methods (tree, PDE discretization such as forward shooting) are fine to price American options. There're ...


1

UBS launched a series of these around 1997-98. One needs to see the Offering Memorandum to see the full details and the reference trigger for the put and call. In the case of the UBS bonds (they were the ibanker, not the issuer), they issues 3/10 and 3/30 put-table and callable bonds. What they really were (and what these probably are): the bond buyer ...



Only top voted, non community-wiki answers of a minimum length are eligible