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UnRisk: Finance@Court
Andreas Binder

Municipalities would do well to analyze payoffs and the risk of swaps before taking a leap with taxpayers' money...

Low Strike Extrapolation for SABR - d-fine
Sebastian Schlenkrich, André Miemiec, Tilman Wolff-Siemssen, d-fine GmbH, Frankfurt, Germany

In this paper we analyse the modelling of rate options in a low interest rate market environment. In particular, the pricing of low, zero and negative strike vanilla options is considered. We review the modelling approaches available in the literature. For the important special case of the widely used SABR formula we illustrate the shortcomings connected with the low strike wing of the smile.

Moreover, a simple approach of low strike extrapolation will be presented. It is based on gluing the density function implied by the standard SABR formula to a suitable density function at low strikes in an arbitrage free manner. This approach yields a robust and transparent method to price low, zero and negative strike vanilla options.

In the Lap of the Gods: Wilmott Magazine Article
Henriëtte Prast 3465 Views

The 17th-century mathematician and theologian Blaise Pascal became fascinated by gambling as a phenomenon after being approached for help by a gambling addict who had got himself into financial difficulties. Tradition has it that this meeting caused Mr. Pascal to retreat to a monastery, where, ironically, he invented the roulette wheel. Pascal's philosophising about gambling also produced a rational explanation for the Christian faith. If God exists, the religious have gambled well and won themselves a place in heaven; if there is no God, nothing is lost. Pagans, on the other hand, will end up in Hell, if God turns out to exist after all. According to Pascal, this makes opting for the faith a rational bet.

Wilmott and Taleb seminar 12-13 March London
Join Paul and Nassim for their infamous two-day seminar. Always at the cutting edge of financial thought.

QUANTITATIVE RISK MANAGEMENT - IN THEORY AND IN PRACTICE

12-13 March 2015, London


  • What is Risk?
  • What are Fat Tails?
  • The idea of fragility and how to measure it
  • Size and scaling
  • The law of large numbers in the real world
  • What is complexity?
  • How to price options using different distributions
  • How to simulate fat tails
  • How to measure model risk
  • How not to measure model risk
  • Sometimes it's wrong to use probabilities
  • The concept of delta-alpha
  • The commonest quant mistakes
  • The greeks that give you false hope
  • Why calibration does not work
  • The dangers of correlation
  • The importance of nonlinearity
  • Volatility nonsense
  • What commonsense tells you about volatility, and turning that into a model
  • Why simple models are often the best and why too much math can be dangerous
  • A summary of what to do and where the real world is different

Extreme Earlybird Special: £750 + VAT

Normal Price £1,999 plus VAT

The URL for online payment is http://www.wilmott.com/seminar_wt.cfm

This course is not available online
Course notes are not available separately
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