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Mar
3
comment The concept of an incomplete market
@Probilitator: This is a link only reply, which are supposed to be provided in comments as per policy. I learned this the hard way :-) i.e. one of my answers got removed.
Mar
3
comment Algorithmical replication of a profit and loss function using different options
Hmm, why do you need puts? Let $S$ be the underlying and $K$ any strike level. Then the pay-out of the put is $max(K - S, 0)$ which is equal to $K - S + max(S - K, 0)$ which is a portfolio consisting of $K$ long cash, short the underlying (i.e. one call with strike zero), and long a call with strike $K$.
Feb
28
comment The concept of an incomplete market
A good reference is "Föllmer, H. and Schied, A. (2002). Stochastic Finance: An Introduction in Discrete Time, de Gruyter Series in Mathematics 27, Berlin". Whether it is "easily accessible" or not is of course a matter of subjective taste. It covers the first two bullet points comprehensively.
Feb
28
comment Algorithmical replication of a profit and loss function using different options
Actually this problem is not about options it is about approximation of a function (the pay out) by a set of basis functions (the calls.) It is (as you say) pure linear algebra. You even do not need Puts and Calls. If you permit long and short positions only Calls and Cash are sufficient. Solutions are unique if your replicating instruments are linear independent. In many cases the space of functions you would like to replicate will be of infinite dimension. But the case of piecewise linear functions with a finite number of breakpoints is entirely straightforward.
Feb
14
answered Attributing the change in NII to Shift, Twist and Butterfly
Feb
14
answered Is it wrong to use 'real world' probabilities for option valuation?
Jan
30
comment Consistency of economic scenarios in nested stochastics simulation
It does not address the question as there is no reference to nested stochastics. Actually I could not even find a clear distinction between real world and risk neutral dynamics. From a quick glance the author seems to suggest a discrete Markov chain approach for calibrating an economic scenario generator. This is a straightforward idea but in my opinion such an approach will work only if the state space has very low dimension (<5), since in higher dimensions this discretisation of the state space is no longer feasible.
Jan
27
answered Estimation of Empirical Expected Shortfall of a heavy tailed distribution
Jan
27
comment Quasi Monte Carlo in Matlab
Could you explain a bit more what you are exactly trying to achieve? E.g. what do you mean by "convergence"? It is not clear to me what is supposed to converge to what. The second paragraph sounds like you were using the Quasi random numbers as "noise" which you add to something so that your regression methods have something to pick up. The convergence results you quote are related to the variance of the standard MC-Estimator which is something different from regression.
Jan
23
awarded  Commentator
Jan
23
comment what is considered material information?
This question appears to be off-topic because it is a legal question not quantitative finance related
Jan
23
comment Pricing options under restricted domain
Wouldn't you need to specify the process of the security for this? To get specific answers it might also help to describe what kind of options you would like to consider and last but not least what you mean by "to price", e.g. explicit expression an anlytic solution or an approximation.
Apr
2
answered How does the number of free dimensions of a model affect its required size of sample?
Feb
2
awarded  Informed
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
Only once one understands what is going, one might start to ask commercial questions. Imagine an institution managing vega-risk in such a dont-care fashion with a model where implied vola is assumed constant. Can you make money off of them? Or at least offer them vega-protection cheaper by having a better(?) model?
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
"Why care": This is more difficult to comment on. Some people think logical consistency is an end in itself, some are more pragmatic But I think that a logically inconsistent risk measuring approach is inherently dangerous. At least as long as you do not understand the nature and scope of those limitations.
Feb
2
comment Consistency of economic scenarios in nested stochastics simulation
The question is exactly how this “related somehow by construction” can be achieved. Look at a 2period option in a Black-Scholes Model. Black-Scholes assumes deterministic implied vola. So it makes no sense within this model to apply an implied vola distribution after one period to assess the risk of this option. The price at t=0 will be inconsistent with all prices at t=1 by construction.
Jan
30
awarded  Revival
Jan
29
awarded  Teacher
Jan
29
awarded  Supporter