Wilmott Magazine: July 2015 issue

Volume 2015, Issue 79. Pages 1–84

jul15_interior

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. 2015, iss. 78, p. 1–1, 2015. doi:10.1002/wilm.10425
    [BibTeX] [Download PDF]
    @article {WILM:WILM10425,
    title = {Contents},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10425},
    doi = {10.1002/wilm.10425},
    pages = {1--1},
    year = {2015},
    }

  • D. Tudball, “Ed’s letter: high apple pie in the sky hopes,” Wilmott, vol. 2015, iss. 78, p. 2–3, 2015. doi:10.1002/wilm.10426
    [BibTeX] [Abstract] [Download PDF]

    This allows forecasting pitfalls to be avoided – pitfalls that most, if not all, professional forecasters fall into

    @article {WILM:WILM10426,
    author = {Tudball, Dan},
    title = {Ed's Letter: High Apple Pie in the Sky Hopes},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10426},
    doi = {10.1002/wilm.10426},
    pages = {2--3},
    year = {2015},
    abstract = {This allows forecasting pitfalls to be avoided – pitfalls that most, if not all, professional forecasters fall into},
    }

  • “News,” Wilmott, vol. 2015, iss. 78, p. 4–9, 2015. doi:10.1002/wilm.10427
    [BibTeX] [Download PDF]
    @article {WILM:WILM10427,
    title = {News},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10427},
    doi = {10.1002/wilm.10427},
    pages = {4--9},
    year = {2015},
    }

  • G. Herrera and T. Toivanen, “Consistent outperformance based on published information – or when reality defies theory,” Wilmott, vol. 2015, iss. 78, p. 10–11, 2015. doi:10.1002/wilm.10428
    [BibTeX] [Abstract] [Download PDF]

    Successful active management is widely accepted to be a difficult undertaking, as financial markets are believed to be fairly efficient. Achieving outperformance based on publicly available historical information is seen as impossible, according to financial markets theory. Therefore, all the more surprising are our findings that a systematic investment process selecting ‘superior’ companies based on published fundamental company data leads to sustained outperformance

    @article {WILM:WILM10428,
    author = {Herrera, Gabriel and Toivanen, Tero},
    title = {Consistent Outperformance Based on Published Information – or When Reality Defies Theory},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10428},
    doi = {10.1002/wilm.10428},
    pages = {10--11},
    year = {2015},
    abstract = {Successful active management is widely accepted to be a difficult undertaking, as financial markets are believed to be fairly efficient. Achieving outperformance based on publicly available historical information is seen as impossible, according to financial markets theory. Therefore, all the more surprising are our findings that a systematic investment process selecting ‘superior’ companies based on published fundamental company data leads to sustained outperformance},
    }

  • A. Brown, “Superforecasting,” Wilmott, vol. 2015, iss. 78, p. 12–15, 2015. doi:10.1002/wilm.10429
    [BibTeX] [Abstract] [Download PDF]

    Reflecting on Tetlock and Gardner’s “Ten Commandments for Aspiring Superforecasters”

    @article {WILM:WILM10429,
    author = {Brown, Aaron},
    title = {Superforecasting},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10429},
    doi = {10.1002/wilm.10429},
    pages = {12--15},
    year = {2015},
    abstract = {Reflecting on Tetlock and Gardner's “Ten Commandments for Aspiring Superforecasters”},
    }

  • S. Das, “No way out?,” Wilmott, vol. 2015, iss. 78, p. 16–25, 2015. doi:10.1002/wilm.10430
    [BibTeX] [Abstract] [Download PDF]

    Awaiting an elusive recovery, the global economy resembles Beckett’s absurdist plot

    @article {WILM:WILM10430,
    author = {Das, Satyajit},
    title = {No Way Out?},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10430},
    doi = {10.1002/wilm.10430},
    pages = {16--25},
    year = {2015},
    abstract = {Awaiting an elusive recovery, the global economy resembles Beckett's absurdist plot},
    }

  • B. Ziemba, “The 2015 triple crown,” Wilmott, vol. 2015, iss. 78, p. 26–35, 2015. doi:10.1002/wilm.10431
    [BibTeX] [Abstract] [Download PDF]

    Of Honor Codes and the fate of the Pharoah…

    @article {WILM:WILM10431,
    author = {Ziemba, Bill},
    title = {The 2015 Triple Crown},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10431},
    doi = {10.1002/wilm.10431},
    pages = {26--35},
    year = {2015},
    abstract = {Of Honor Codes and the fate of the Pharoah…},
    }

  • P. Wilmott, “How i successfully forecast the results of the uk general election 2015,” Wilmott, vol. 2015, iss. 78, p. 36–43, 2015. doi:10.1002/wilm.10432
    [BibTeX] [Abstract] [Download PDF]

    Paul Wilmott applies elementary quantitative finance techniques in the runup to the UK General Election 2015 to try to predict the next government. Comparisons are made between elections and derivatives valuation, and this allows forecasting pitfalls to be avoided, pitfalls that most, if not all, professional forecasters fell into. The results were thus far better than those made by said professionals.

    @article {WILM:WILM10432,
    author = {Wilmott, Paul},
    title = {How I Successfully Forecast the Results of the UK General Election 2015},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10432},
    doi = {10.1002/wilm.10432},
    pages = {36--43},
    year = {2015},
    abstract = {Paul Wilmott applies elementary quantitative finance techniques in the runup to the UK General Election 2015 to try to predict the next government. Comparisons are made between elections and derivatives valuation, and this allows forecasting pitfalls to be avoided, pitfalls that most, if not all, professional forecasters fell into. The results were thus far better than those made by said professionals.},
    }

  • M. Staunton, “Think glocal!,” Wilmott, vol. 2015, iss. 78, p. 44–45, 2015. doi:10.1002/wilm.10433
    [BibTeX] [Abstract] [Download PDF]

    Improving on global approximation of cosines via a dip in the Shannon Sea

    @article {WILM:WILM10433,
    author = {Staunton, Mike},
    title = {Think Glocal!},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10433},
    doi = {10.1002/wilm.10433},
    pages = {44--45},
    year = {2015},
    abstract = {Improving on global approximation of cosines via a dip in the Shannon Sea},
    }

  • M. Bianchetti, S. Kucherenko, and S. Scoleri, “Pricing and risk management with high-dimensional quasi-monte carlo and global sensitivity analysis,” Wilmott, vol. 2015, iss. 78, p. 46–70, 2015. doi:10.1002/wilm.10434
    [BibTeX] [Abstract] [Download PDF]

    We review and apply quasi-Monte Carlo (QMC) and global sensitivity analysis (GSA) techniques to pricing and risk management (Greeks) of representative financial instruments of increasing complexity. We compare QMC vs. standard Monte Carlo (MC) results in great detail, using high-dimensional Sobol’ low-discrepancy sequences, different discretization methods, and specific analyses of convergence, performance, speed-up, stability, and error optimization for finite difference Greeks. We find that our QMC outperforms MC in most cases, including the highest-dimensional simulations and Greeks calculations, showing faster and more stable convergence to exact or almost exact results. Using GSA, we are able to fully explain our findings in terms of reduced effective dimension of our QMC simulation, allowed in most cases, but not always, by Brownian bridge discretization. We conclude that, beyond pricing, QMC is a very promising technique also for computing risk figures, Greeks in particular, as it allows us to reduce the computational effort of high-dimensional MC simulations typical of modern risk management.

    @article {WILM:WILM10434,
    author = {Bianchetti, Marco and Kucherenko, Sergei and Scoleri, Stefano},
    title = {Pricing and Risk Management with High-Dimensional Quasi-Monte Carlo and Global Sensitivity Analysis},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10434},
    doi = {10.1002/wilm.10434},
    pages = {46--70},
    keywords = {derivatives, options, European option, Asian option, barrier option, knock-out option, cliquet option, Greeks, Brownian bridge, global sensitivity analysis, Monte Carlo, quasi-Monte Carlo, random numbers, pseudo-random numbers, quasi-random numbers, low discrepancy, Sobol' sequences, convergence, speed-up},
    year = {2015},
    abstract = {We review and apply quasi-Monte Carlo (QMC) and global sensitivity analysis (GSA) techniques to pricing and risk management (Greeks) of representative financial instruments of increasing complexity. We compare QMC vs. standard Monte Carlo (MC) results in great detail, using high-dimensional Sobol' low-discrepancy sequences, different discretization methods, and specific analyses of convergence, performance, speed-up, stability, and error optimization for finite difference Greeks. We find that our QMC outperforms MC in most cases, including the highest-dimensional simulations and Greeks calculations, showing faster and more stable convergence to exact or almost exact results. Using GSA, we are able to fully explain our findings in terms of reduced effective dimension of our QMC simulation, allowed in most cases, but not always, by Brownian bridge discretization. We conclude that, beyond pricing, QMC is a very promising technique also for computing risk figures, Greeks in particular, as it allows us to reduce the computational effort of high-dimensional MC simulations typical of modern risk management.},
    }

  • D. Arrieta, “Minimum relative entropy and cliquet hedging,” Wilmott, vol. 2015, iss. 78, p. 71–81, 2015. doi:10.1002/wilm.10435
    [BibTeX] [Abstract] [Download PDF]

    The goal of this paper is to show a very practical technique for hedging and risk measures of the exotic equity derivative named a cliquet. This methodology was developed and successfully applied by the author in his day-to-day work as an equity derivatives senior quant. The technique is based on the following pillars: * Econometric GARCH family for time-series modeling. * Minimum relative entropy methodology, as presented by Avellaneda et al. (2001); also known as weighted Monte Carlo. * Mean/variance hedging loss function equivalences (Schäl, 1994). Based on these we develop a very useful pricing and hedging methodology that has been applied very successfully during the first decade of the 21st century. Concretely, it has been used to hedge a several-hundred-million EUR cliquet option book.

    @article {WILM:WILM10435,
    author = {Arrieta, Daniel},
    title = {Minimum Relative Entropy and Cliquet Hedging},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10435},
    doi = {10.1002/wilm.10435},
    pages = {71--81},
    keywords = {entropy, cliquet pricing, mean/variance hedging},
    year = {2015},
    abstract = {The goal of this paper is to show a very practical technique for hedging and risk measures of the exotic equity derivative named a cliquet. This methodology was developed and successfully applied by the author in his day-to-day work as an equity derivatives senior quant. The technique is based on the following pillars:
    * Econometric GARCH family for time-series modeling.
    * Minimum relative entropy methodology, as presented by Avellaneda et al. (2001); also known as weighted Monte Carlo.
    * Mean/variance hedging loss function equivalences (Schäl, 1994).
    Based on these we develop a very useful pricing and hedging methodology that has been applied very successfully during the first decade of the 21st century. Concretely, it has been used to hedge a several-hundred-million EUR cliquet option book.},
    }

  • M. Radley, “Cars,” Wilmott, vol. 2015, iss. 78, p. 82–83, 2015. doi:10.1002/wilm.10436
    [BibTeX] [Abstract] [Download PDF]

    The king of the 911 family has finally arrived with the stripped-down, no compromise 911 GT3 RS. Those with a nervous disposition, look away now…

    @article {WILM:WILM10436,
    author = {Radley, Milford},
    title = {Cars},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10436},
    doi = {10.1002/wilm.10436},
    pages = {82--83},
    year = {2015},
    abstract = {The king of the 911 family has finally arrived with the stripped-down, no compromise 911 GT3 RS. Those with a nervous disposition, look away now…},
    }

  • J. Darasz, “The skewed world of jan darasz,” Wilmott, vol. 2015, iss. 78, p. 84–84, 2015. doi:10.1002/wilm.10437
    [BibTeX] [Download PDF]
    @article {WILM:WILM10437,
    author = {Darasz, Jan},
    title = {The skewed world of Jan Darasz},
    journal = {Wilmott},
    volume = {2015},
    number = {78},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10437},
    doi = {10.1002/wilm.10437},
    pages = {84--84},
    year = {2015},
    }

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