- The first is a useful technique for backing out reliable stochastic models for random financial variables. It uses the increments in the variable to estimate the volatility structure (in this case, the volatility of volatility) and the steady-state distribution to back out the drift structure. It's a technique I've used for modelling volatility, interest rates and commodity prices.
- Second is the profit you make from buying/selling and hedging incorrectly priced options, simple volatility arbitrage.
- Third, CrashMetrics, the ever so simple stress test for extreme markets when assets become very highly correlated.
I'll be speaking on the second of these subjects in detail at a conference in Amsterdam on June 1st.
The attached (rather large, 17Mb) file is the audio recording of my London lecture.