In an effort to improve credit risk management, financial institutions have developed various measures to manage their exposure to counterparty risk. One important measure of counterparty risk is potential future exposure (PFE), which is a […]
The orthodoxy has tendency to ignore drift which leaves opportunity for finformaticians the market over… Logged-in members can download the article by clicking the link below. To log in or register visit here.
An intuitive model for the yield curve, based on the notion of value-at-risk, is presented. It leads to interest rates that hedge against potential losses incurred from holding an underlying risky security until maturity. This […]
A previous paper (West 2005) tackled the issue of calculating accurate uni-, bi- and trivariate normal probabilities. This has important applications in the pricing of multiasset options, e.g. rainbow options. In this paper, we derive […]
The purpose of this paper is to provide an analytical solution for American call options assuming proportional dividends. Proportional dividends are more realistic for long-term options than absolute dividends and the formula does not have […]
This is taken from the Second Edition of Paul Wilmott On Quantitative Finance, published by John Wiley & Sons 2006. Logged-in members can download the article by clicking the link below. To log in or […]
The purpose of this article is to introduce the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader. Logged-in members can […]
In this paper I look at the practical valuation of power derivatives from a trader’s perspective. Most people that have written about valuation of power derivatives are academics or quants working in the research departments […]
From a cigar butt to a humidor full of Havanas, courtesy of Mr Buffett. Logged-in members can download the article by clicking the link below. To log in or register visit here.
Driven by a competitive market and motivated by the new Basel Capital Accord (Basel II), banks have put a lot of effort into development and improvement of their methods to assess the creditworthiness of their […]