Wilmott Magazine: March 2016 issue

Volume 2016, Issue 82. Pages 1–96

Screen Shot 2016-06-03 at 16.25.44

Every issue we bring you original material from some of the best columnists, educators and cutting-edge researchers. In this issue:

Bibliography

  • “Contents,” Wilmott, vol. 2016, iss. 82, p. 1–1, 2016. doi:10.1002/wilm.10477
    [BibTeX] [Download PDF]
    @article {WILM:WILM10477,
    title = {Contents},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10477},
    doi = {10.1002/wilm.10477},
    pages = {1--1},
    year = {2016},
    }

  • D. Tudball, “Ed’s letter: proceed with what you’re leading me to,” Wilmott, vol. 2016, iss. 82, p. 2–3, 2016. doi:10.1002/wilm.10478
    [BibTeX] [Abstract] [Download PDF]

    Access to innovative ideas and practical examples used in quant finance.

    @article {WILM:WILM10478,
    author = {Tudball, Dan},
    title = {Ed's Letter: Proceed With What You're Leading Me To},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10478},
    doi = {10.1002/wilm.10478},
    pages = {2--3},
    year = {2016},
    abstract = {Access to innovative ideas and practical examples used in quant finance.},
    }

  • “News,” Wilmott, vol. 2016, iss. 82, p. 4–7, 2016. doi:10.1002/wilm.10479
    [BibTeX] [Download PDF]
    @article {WILM:WILM10479,
    title = {News},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10479},
    doi = {10.1002/wilm.10479},
    pages = {4--7},
    year = {2016},
    }

  • A. Brown, “Reinforced concrete,” Wilmott, vol. 2016, iss. 82, p. 8–13, 2016. doi:10.1002/wilm.10480
    [BibTeX] [Abstract] [Download PDF]

    The world needs more concrete economics and the authors of Concrete Economics have made a valiant attempt to provide a starting point.

    @article {WILM:WILM10480,
    author = {Brown, Aaron},
    title = {Reinforced Concrete},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10480},
    doi = {10.1002/wilm.10480},
    pages = {8--13},
    year = {2016},
    abstract = {The world needs more concrete economics and the authors of Concrete Economics have made a valiant attempt to provide a starting point.},
    }

  • S. Das, “The illusion of liquidity,” Wilmott, vol. 2016, iss. 82, p. 14–17, 2016. doi:10.1002/wilm.10481
    [BibTeX] [Abstract] [Download PDF]

    Today, excessive liquidity is increasingly a violation of normal market operations.

    @article {WILM:WILM10481,
    author = {Das, Satyajit},
    title = {The Illusion of Liquidity},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10481},
    doi = {10.1002/wilm.10481},
    pages = {14--17},
    year = {2016},
    abstract = {Today, excessive liquidity is increasingly a violation of normal market operations.},
    }

  • R. Bogni, “It’s the demographics, stupid!,” Wilmott, vol. 2016, iss. 82, p. 18–19, 2016. doi:10.1002/wilm.10482
    [BibTeX] [Abstract] [Download PDF]

    Do humans tend to think in incremental terms and find it more difficult to relate to jumps in data or the real world?

    @article {WILM:WILM10482,
    author = {Bogni, Rudi},
    title = {It's the Demographics, Stupid!},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10482},
    doi = {10.1002/wilm.10482},
    pages = {18--19},
    year = {2016},
    abstract = {Do humans tend to think in incremental terms and find it more difficult to relate to jumps in data or the real world?},
    }

  • L. C. MacLean and W. T. Ziemba, “Primer on dynamic portfolio theory,” Wilmott, vol. 2016, iss. 82, p. 20–26, 2016. doi:10.1002/wilm.10483
    [BibTeX] [Abstract] [Download PDF]

    On negative-power/log-type utility functions and their associated capital growth.

    @article {WILM:WILM10483,
    author = {MacLean, Leonard C. and Ziemba, William T.},
    title = {Primer on Dynamic Portfolio Theory},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10483},
    doi = {10.1002/wilm.10483},
    pages = {20--26},
    year = {2016},
    abstract = {On negative-power/log-type utility functions and their associated capital growth.},
    }

  • D. Tudball, “Quant insights,” Wilmott, vol. 2016, iss. 82, p. 27–30, 2016. doi:10.1002/wilm.10484
    [BibTeX] [Abstract] [Download PDF]

    Highlights from the conference brought to you by CQF Institute, Wilmott, and Wiley exploring changes and innovations in quantitative finance.

    @article {WILM:WILM10484,
    author = {Tudball, Dan},
    title = {Quant Insights},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10484},
    doi = {10.1002/wilm.10484},
    pages = {27--30},
    year = {2016},
    abstract = {Highlights from the conference brought to you by CQF Institute, Wilmott, and Wiley exploring changes and innovations in quantitative finance.},
    }

  • “Cue images qua images,” Wilmott, vol. 2016, iss. 82, p. 31–32, 2016. doi:10.1002/wilm.10485
    [BibTeX] [Abstract] [Download PDF]

    QI showcased the latest trends in XVA, technology, and modeling techniques.

    @article {WILM:WILM10485,
    title = {Cue Images Qua Images},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10485},
    doi = {10.1002/wilm.10485},
    pages = {31--32},
    year = {2016},
    abstract = {QI showcased the latest trends in XVA, technology, and modeling techniques.},
    }

  • P. Wilmott, “Quantitative seizing,” Wilmott, vol. 2016, iss. 82, p. 33–36, 2016. doi:10.1002/wilm.10486
    [BibTeX] [Abstract] [Download PDF]

    In his keynote address, Paul Wilmott looks at what quantitative finance ought to be about and why it is what it is.

    @article {WILM:WILM10486,
    author = {Wilmott, Paul},
    title = {Quantitative Seizing},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10486},
    doi = {10.1002/wilm.10486},
    pages = {33--36},
    year = {2016},
    abstract = {In his keynote address, Paul Wilmott looks at what quantitative finance ought to be about and why it is what it is.},
    }

  • J. Gregory, “The past, present, and future of xva,” Wilmott, vol. 2016, iss. 82, p. 37–39, 2016. doi:10.1002/wilm.10487
    [BibTeX] [Abstract] [Download PDF]

    It’s derivatives pricing, stupid.

    @article {WILM:WILM10487,
    author = {Gregory, Jon},
    title = {The Past, Present, and Future of xVA},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10487},
    doi = {10.1002/wilm.10487},
    pages = {37--39},
    year = {2016},
    abstract = {It's derivatives pricing, stupid.},
    }

  • A. Green and C. Kenyon, “Xva at the exercise boundary: summary,” Wilmott, vol. 2016, iss. 82, p. 40–42, 2016. doi:10.1002/wilm.10488
    [BibTeX] [Download PDF]
    @article {WILM:WILM10488,
    author = {Green, Andrew and Kenyon, Chris},
    title = {XVA at the Exercise Boundary: Summary},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10488},
    doi = {10.1002/wilm.10488},
    pages = {40--42},
    year = {2016},
    }

  • Y. J. Hilpisch, “Computational finance – why python is taking over,” Wilmott, vol. 2016, iss. 82, p. 43–44, 2016. doi:10.1002/wilm.10489
    [BibTeX] [Download PDF]
    @article {WILM:WILM10489,
    author = {Hilpisch, Yves J.},
    title = {Computational Finance – Why Python Is Taking Over},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10489},
    doi = {10.1002/wilm.10489},
    pages = {43--44},
    year = {2016},
    }

  • D. B. Madan and W. Schoutens, “Conic cva and dva,” Wilmott, vol. 2016, iss. 82, p. 45–50, 2016. doi:10.1002/wilm.10490
    [BibTeX] [Download PDF]
    @article {WILM:WILM10490,
    author = {Madan, Dilip B. and Schoutens, Wim},
    title = {Conic CVA and DVA},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10490},
    doi = {10.1002/wilm.10490},
    pages = {45--50},
    year = {2016},
    }

  • I. J. Clark, “Modeling pegged currencies – examples from 2015: eurchf, usdcny, and usdars,” Wilmott, vol. 2016, iss. 82, p. 51–59, 2016. doi:10.1002/wilm.10491
    [BibTeX] [Download PDF]
    @article {WILM:WILM10491,
    author = {Clark, Iain J.},
    title = {Modeling Pegged Currencies – Examples from 2015: EURCHF, USDCNY, and USDARS},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10491},
    doi = {10.1002/wilm.10491},
    pages = {51--59},
    year = {2016},
    }

  • M. Staunton, “Collocation, collocation, collocation!,” Wilmott, vol. 2016, iss. 82, p. 60–61, 2016. doi:10.1002/wilm.10492
    [BibTeX] [Abstract] [Download PDF]

    Cumulative distribution functions can be matched very, very closely using a mere handful or two or collocation points.

    @article {WILM:WILM10492,
    author = {Staunton, Mike},
    title = {Collocation, Collocation, Collocation!},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10492},
    doi = {10.1002/wilm.10492},
    pages = {60--61},
    year = {2016},
    abstract = {Cumulative distribution functions can be matched very, very closely using a mere handful or two or collocation points.},
    }

  • O. Kovrizhkin and F. Mercurio, “The practice of local correlation: an empirical study of multi-currency option pricing,” Wilmott, vol. 2016, iss. 82, p. 62–73, 2016. doi:10.1002/wilm.10493
    [BibTeX] [Abstract] [Download PDF]

    We introduce local correlation models for pricing FX basket options. We review the general methodology and analyze three main specifications used in the industry. Numerical examples are showcased, and prices obtained using local correlation compared with corresponding “rule-of-thumb” methods.

    @article {WILM:WILM10493,
    author = {Kovrizhkin, Oleg and Mercurio, Fabio},
    title = {The Practice of Local Correlation: An Empirical Study of Multi-Currency Option Pricing},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10493},
    doi = {10.1002/wilm.10493},
    pages = {62--73},
    keywords = {local correlation, multi-currency},
    year = {2016},
    abstract = {We introduce local correlation models for pricing FX basket options. We review the general methodology and analyze three main specifications used in the industry. Numerical examples are showcased, and prices obtained using local correlation compared with corresponding “rule-of-thumb” methods.},
    }

  • G. Dhesi, M. B. Shakeel, and L. Xiao, “Modified brownian motion approach to modeling returns distribution,” Wilmott, vol. 2016, iss. 82, p. 74–77, 2016. doi:10.1002/wilm.10494
    [BibTeX] [Abstract] [Download PDF]

    An innovative extension of the geometric Brownian motion model is developed by incorporating a weighting factor and a stochastic function modeled as a mixture of power and trigonometric functions. Simulations based on this modified Brownian motion model, with optimal weighting factors selected by goodness-of-fit tests, substantially outperform the basic geometric Brownian motion model in terms of fitting the returns distribution of historic data price indices. Furthermore, we attempt to provide an interpretation of the additional stochastic term in relation to irrational behavior in financial markets and outline the importance of this novel model.

    @article {WILM:WILM10494,
    author = {Dhesi, Gurjeet and Shakeel, Muhammad Bilal and Xiao, Ling},
    title = {Modified Brownian Motion Approach to Modeling Returns Distribution},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10494},
    doi = {10.1002/wilm.10494},
    pages = {74--77},
    keywords = {Brownian motion, modified Brownian motion, modeling returns distribution, simulations, irrational behavior},
    year = {2016},
    abstract = {An innovative extension of the geometric Brownian motion model is developed by incorporating a weighting factor and a stochastic function modeled as a mixture of power and trigonometric functions. Simulations based on this modified Brownian motion model, with optimal weighting factors selected by goodness-of-fit tests, substantially outperform the basic geometric Brownian motion model in terms of fitting the returns distribution of historic data price indices. Furthermore, we attempt to provide an interpretation of the additional stochastic term in relation to irrational behavior in financial markets and outline the importance of this novel model.},
    }

  • D. Zhu and D. Qu, “Libor local volatility model: a new interest rate smile model,” Wilmott, vol. 2016, iss. 82, p. 78–87, 2016. doi:10.1002/wilm.10495
    [BibTeX] [Abstract] [Download PDF]

    Interest rate smile models are relatively complex, and even basic smile calibration processes are numerically intensive and inefficient. This paper presents a much simpler and more practical model that handles the interest rate smile in a fundamentally different way. The model postulates a spot process of the rolling Libor, which permits Dupire-type local volatility stripping in the asset class of interest rates. Direct local volatility stripping will make interest rate smile calibration a magnitude more efficient. The model also formulates a backward-pricing partial differential equation using a numeraire deflated value, which can be used to price suitable path-dependent interest rate derivatives with a smile. This self-contained smile model possesses all the good features of a Dupire-type local volatility model, including numerical simplicity and efficiency. The new modeling approach can potentially make interest rate smile modeling as efficient as equivalent smile modeling in equity or foreign exchange.

    @article {WILM:WILM10495,
    author = {Zhu, Dingqiu and Qu, Dong},
    title = {Libor Local Volatility Model: A New Interest Rate Smile Model},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10495},
    doi = {10.1002/wilm.10495},
    pages = {78--87},
    keywords = {interest rate smile modeling, local volatility},
    year = {2016},
    abstract = {Interest rate smile models are relatively complex, and even basic smile calibration processes are numerically intensive and inefficient. This paper presents a much simpler and more practical model that handles the interest rate smile in a fundamentally different way. The model postulates a spot process of the rolling Libor, which permits Dupire-type local volatility stripping in the asset class of interest rates. Direct local volatility stripping will make interest rate smile calibration a magnitude more efficient. The model also formulates a backward-pricing partial differential equation using a numeraire deflated value, which can be used to price suitable path-dependent interest rate derivatives with a smile. This self-contained smile model possesses all the good features of a Dupire-type local volatility model, including numerical simplicity and efficiency. The new modeling approach can potentially make interest rate smile modeling as efficient as equivalent smile modeling in equity or foreign exchange.},
    }

  • S. Das, “The setting sun,” Wilmott, vol. 2016, iss. 82, p. 88–93, 2016. doi:10.1002/wilm.10496
    [BibTeX] [Abstract] [Download PDF]

    The story of modern Japan holds important, and complex, lessons for other economies.

    @article {WILM:WILM10496,
    author = {Das, Satyajit},
    title = {The Setting Sun},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10496},
    doi = {10.1002/wilm.10496},
    pages = {88--93},
    year = {2016},
    abstract = {The story of modern Japan holds important, and complex, lessons for other economies.},
    }

  • M. Radley, “Cars,” Wilmott, vol. 2016, iss. 82, p. 94–95, 2016. doi:10.1002/wilm.10497
    [BibTeX] [Abstract] [Download PDF]

    Porsche turns convention on its head and introduces turbocharging to all of its 911 Carrera models.

    @article {WILM:WILM10497,
    author = {Radley, Milford},
    title = {Cars},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10497},
    doi = {10.1002/wilm.10497},
    pages = {94--95},
    year = {2016},
    abstract = {Porsche turns convention on its head and introduces turbocharging to all of its 911 Carrera models.},
    }

  • J. Darasz, “The skewed world of jan darasz,” Wilmott, vol. 2016, iss. 82, p. 96–96, 2016. doi:10.1002/wilm.10498
    [BibTeX] [Download PDF]
    @article {WILM:WILM10498,
    author = {Darasz, Jan},
    title = {The skewed world of Jan Darasz},
    journal = {Wilmott},
    volume = {2016},
    number = {82},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10498},
    doi = {10.1002/wilm.10498},
    pages = {96--96},
    year = {2016},
    }

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