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Mar
21
answered Credit risk data
Feb
24
comment Why FX Vanilla Options are quoted in volatility
In addition to OTC options, there exist a few other markets where quoting conventions are in terms of a (standard) model rather than on true price. High-grade corporate CDS and bonds are quoted in spread terms, CDX are quoted in bond-like price terms, tranche protection in implied correlation terms, and convertible bonds in price/delta/underlying terms. And for exchange-traded contracts, we have eurodollar futures which are quoted as an affine transformation of LIBOR.
Feb
11
awarded  Nice Question
Feb
8
awarded  Yearling
Feb
5
answered Intangible assets as underlying for Futures contracts
Jan
23
comment Are there any derivatives which pay amount $a(p-b)^{2}-c$ where $p$ is the price of underling asset?
They're sometimes called "power contracts" and though I've known them to be coded into the pricing libraries of at least 2 big investment banks, I've never seen one on the books.
Jan
22
revised Other means of calibrating Heston models
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Jan
22
answered Other means of calibrating Heston models
Jan
13
comment What data transformations to use in regression of credit spreads on equity prices?
I agree with Freddy here. There's too much going on to expect any kind of reasonable predictive outcome from VAR or GARCH.
Jan
13
answered What data transformations to use in regression of credit spreads on equity prices?
Jan
8
answered Why is short term implied volatility typically higher?
Dec
30
revised Fastest algorithm for calculating retrospective maximum drawdown
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Dec
30
answered Fastest algorithm for calculating retrospective maximum drawdown
Dec
30
comment Fastest algorithm for calculating retrospective maximum drawdown
You should probably clarify your question. Most readers are assuming you are asking about retrospective maximum drawdown, whereas I infer from the PDF you want to compute an expectation of it.
Dec
28
comment Yield Curve Volatility
Well, it obviously depends on the estimation error size, doesn't it? Once you have defined your interest rate and credit spread dynamics, and somehow quantified your estimation error, this is a very simple discrete optimization problem.
Dec
22
answered How to enumerate all the possible portfolios with a given target volatility?
Dec
22
comment what is the implied volatility on a basket of options
Implicit in those well-chosen PDFs is the point that cointegration matters a lot for baskets. That is to say, the volatility of a basket cannot be inferred from the dynamics of its components alone. The very minimum you can work with is a set of volatilities and a "constant" correlation matrix with the same value $\rho$ for all off-diagonal elements. But the PDFs are more advanced.
Dec
14
answered Basket option pricing: step by step tutorial for beginners
Dec
13
comment Replicating portfolio and risk-neutral pricing for interest rate options
It's made of interest rate instruments, of course, one per dimension of your SDE. Money market accounts, swaps and zero coupon bonds are common choices.
Dec
4
answered GBM 3d plot with R