Wilmott Magazine: November 2016 issue

Volume 2016, Issue 86. Pages 1–84
1611cover

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. 86, pp. 1-1, 2016. doi:10.1002/wilm.10541
    [BibTeX]
    @article {WILM:WILM10541,
    title = {Contents},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10541},
    doi = {10.1002/wilm.10541},
    pages = {1--1},
    year = {2016},
    }

  • D. Tudball, “Ed’s letter: they’ll be some changes made,” Wilmott, vol. 2016, iss. 86, pp. 2-3, 2016. doi:10.1002/wilm.10542
    [BibTeX] [Abstract]

    The discussion reveals a man who wears his knowledge and influence lightly, quick to assign credit to his collaborators and, tellingly, one who chose the name for his private vehicle, “Gorilla Science LLP,” because “it was about brute intellect.”

    @article {WILM:WILM10542,
    author = {Tudball, Dan},
    title = {Ed's Letter: They'll Be Some Changes Made},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10542},
    doi = {10.1002/wilm.10542},
    pages = {2--3},
    year = {2016},
    abstract = {The discussion reveals a man who wears his knowledge and influence lightly, quick to assign credit to his collaborators and, tellingly, one who chose the name for his private vehicle, “Gorilla Science LLP,” because “it was about brute intellect.”},
    }

  • “News,” Wilmott, vol. 2016, iss. 86, pp. 4-7, 2016. doi:10.1002/wilm.10543
    [BibTeX]
    @article {WILM:WILM10543,
    title = {News},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10543},
    doi = {10.1002/wilm.10543},
    pages = {4--7},
    year = {2016},
    }

  • A. Brown, “Poker hands,” Wilmott, vol. 2016, iss. 86, pp. 8-11, 2016. doi:10.1002/wilm.10544
    [BibTeX] [Abstract]

    Get your money in with the best of it.

    @article {WILM:WILM10544,
    author = {Brown, Aaron},
    title = {Poker Hands},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10544},
    doi = {10.1002/wilm.10544},
    pages = {8--11},
    year = {2016},
    abstract = {Get your money in with the best of it.},
    }

  • S. Das, “Crash course or the cascade of financial woes,” Wilmott, vol. 2016, iss. 86, pp. 12-21, 2016. doi:10.1002/wilm.10545
    [BibTeX] [Abstract]

    While the timing of the inevitable crisis is not known, there are a number of possible triggers, including currency volatility, sovereign or corporate debt defaults, or policy errors.

    @article {WILM:WILM10545,
    author = {Das, Satyajit},
    title = {Crash Course or the Cascade of Financial Woes},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10545},
    doi = {10.1002/wilm.10545},
    pages = {12--21},
    year = {2016},
    abstract = {While the timing of the inevitable crisis is not known, there are a number of possible triggers, including currency volatility, sovereign or corporate debt defaults, or policy errors.},
    }

  • R. Bogni, “Marx is buried, but is he dead?,” Wilmott, vol. 2016, iss. 86, pp. 22-23, 2016. doi:10.1002/wilm.10546
    [BibTeX] [Abstract]

    Should we use Marxist analysis to understand the current economic and political processes in action?

    @article {WILM:WILM10546,
    author = {Bogni, Rudi},
    title = {Marx Is Buried, But Is He Dead?},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10546},
    doi = {10.1002/wilm.10546},
    pages = {22--23},
    year = {2016},
    abstract = {Should we use Marxist analysis to understand the current economic and political processes in action?},
    }

  • T. Helbing, “Economic value in the credit business: part i,” Wilmott, vol. 2016, iss. 86, pp. 24-29, 2016. doi:10.1002/wilm.10547
    [BibTeX] [Abstract]

    In a three-part article, Tomasz Helbing presents the concept of economic value for loans and a corresponding modeling framework that doesn’t resort to direct generation of potential scenarios of future cash flows.

    @article {WILM:WILM10547,
    author = {Helbing, Tomasz},
    title = {Economic Value in the Credit Business: Part I},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10547},
    doi = {10.1002/wilm.10547},
    pages = {24--29},
    year = {2016},
    abstract = {In a three-part article, Tomasz Helbing presents the concept of economic value for loans and a corresponding modeling framework that doesn't resort to direct generation of potential scenarios of future cash flows.},
    }

  • B. Ziemba, “Inefficiencies and anomalies,” Wilmott, vol. 2016, iss. 86, pp. 30-37, 2016. doi:10.1002/wilm.10548
    [BibTeX] [Abstract]

    Other crashes and how they fit the models.

    @article {WILM:WILM10548,
    author = {Ziemba, Bill},
    title = {Inefficiencies and Anomalies},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10548},
    doi = {10.1002/wilm.10548},
    pages = {30--37},
    year = {2016},
    abstract = {Other crashes and how they fit the models.},
    }

  • P. Farley, M. Aichinger, A. Binder, S. Wilcockson, V. Shah, S. Byrne, M. Adler, and J. Church, “Vive la difference!,” Wilmott, vol. 2016, iss. 86, pp. 38-51, 2016. doi:10.1002/wilm.10549
    [BibTeX] [Abstract]

    With the continued migration of quant skills throughout the finance industry, it is now diversity that defines current trends in technology for quantitative finance.

    @article {WILM:WILM10549,
    author = {Farley, Peter and Aichinger, Michael and Binder, Andreas and Wilcockson, Steve and Shah, Viral and Byrne, Simon and Adler, Marc and Church, James},
    title = {Vive La Difference!},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10549},
    doi = {10.1002/wilm.10549},
    pages = {38--51},
    year = {2016},
    abstract = {With the continued migration of quant skills throughout the finance industry, it is now diversity that defines current trends in technology for quantitative finance.},
    }

  • M. Marquart, “Cva for pricing: comparison of cem, sa-ccr, and advanced approach,” Wilmott, vol. 2016, iss. 86, pp. 52-59, 2016. doi:10.1002/wilm.10550
    [BibTeX] [Abstract]

    Three different methods for calculating exposure at default for credit valuation adjustments (CVA) are described: the new regulatory standard approach for counterparty credit risk (SA-CCR), the widely used current exposure method (CEM), and an advanced approach are introduced and compared regarding their quantitative impact on swap pricing. The paper also gives an overview on differences between the regulatory approach for calculating exposure at default for CVA capital requirements and the best practice approach for estimating international financial reporting standards accounting fair value adjustments.

    @article {WILM:WILM10550,
    author = {Marquart, Monika},
    title = {CVA for Pricing: Comparison of CEM, SA-CCR, and Advanced Approach},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10550},
    doi = {10.1002/wilm.10550},
    pages = {52--59},
    keywords = {CVA, DVA, counterparty credit risk, CEM, SA-CCR},
    year = {2016},
    abstract = {Three different methods for calculating exposure at default for credit valuation adjustments (CVA) are described: the new regulatory standard approach for counterparty credit risk (SA-CCR), the widely used current exposure method (CEM), and an advanced approach are introduced and compared regarding their quantitative impact on swap pricing. The paper also gives an overview on differences between the regulatory approach for calculating exposure at default for CVA capital requirements and the best practice approach for estimating international financial reporting standards accounting fair value adjustments.},
    }

  • M. Escobar and C. Gschnaidtner, “Parameters recovery via calibration in the heston model: a comprehensive review,” Wilmott, vol. 2016, iss. 86, pp. 60-81, 2016. doi:10.1002/wilm.10551
    [BibTeX] [Abstract]

    Numerous publications take a perfect recovery of the actual parameters during a calibration of stochastic volatility models, such as the Heston model and other continuous option pricing models, for granted. However, we show that this is a misleading assumption and that a high accuracy in capturing the true model parameters is not guaranteed for standard calibration approaches, as they are commonly utilized in the financial industry. Having conducted several thousand model calibrations within an artificial testing environment, we are able to identify three factors that influence the resulting calibrated parameters strongly. These are the number of calibration instruments (i.e., option prices or implied Black-Scholes volatilities) available for the calibration, the error measure selected for the calibration, as well as the choice of initial values (particularly their distance to the known true model parameters). Using synthetic, yet generic, data instead of market observed data, we are able to avoid model risk and contribute purely to the literature on calibration risk. We quantify the impact of these factors on the calibration performance by measuring the calibration error (i.e., the distance between the calibrated and known true model parameters). Based on our numerical results, we are able to derive conclusions which can be useful for academics and practitioners alike. We further specify a calibration setup which does not assure, but significantly increases, the probability of a perfect or near-perfect model calibration.

    @article {WILM:WILM10551,
    author = {Escobar, Marcos and Gschnaidtner, Christoph},
    title = {Parameters Recovery via Calibration in the Heston Model: A Comprehensive Review},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10551},
    doi = {10.1002/wilm.10551},
    pages = {60--81},
    keywords = {Heston model, stochastic volatility, model calibration, parameter recovery, calibration risk},
    year = {2016},
    abstract = {Numerous publications take a perfect recovery of the actual parameters during a calibration of stochastic volatility models, such as the Heston model and other continuous option pricing models, for granted. However, we show that this is a misleading assumption and that a high accuracy in capturing the true model parameters is not guaranteed for standard calibration approaches, as they are commonly utilized in the financial industry. Having conducted several thousand model calibrations within an artificial testing environment, we are able to identify three factors that influence the resulting calibrated parameters strongly. These are the number of calibration instruments (i.e., option prices or implied Black-Scholes volatilities) available for the calibration, the error measure selected for the calibration, as well as the choice of initial values (particularly their distance to the known true model parameters). Using synthetic, yet generic, data instead of market observed data, we are able to avoid model risk and contribute purely to the literature on calibration risk. We quantify the impact of these factors on the calibration performance by measuring the calibration error (i.e., the distance between the calibrated and known true model parameters). Based on our numerical results, we are able to derive conclusions which can be useful for academics and practitioners alike. We further specify a calibration setup which does not assure, but significantly increases, the probability of a perfect or near-perfect model calibration.},
    }

  • M. Radley, “Cars,” Wilmott, vol. 2016, iss. 86, pp. 82-83, 2016. doi:10.1002/wilm.10552
    [BibTeX] [Abstract]

    Aston Martin partners up with the Red Bull Formula One team for a knockout hypercar that changes the way racing technology melds with the road.

    @article {WILM:WILM10552,
    author = {Radley, Milford},
    title = {Cars},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10552},
    doi = {10.1002/wilm.10552},
    pages = {82--83},
    year = {2016},
    abstract = {Aston Martin partners up with the Red Bull Formula One team for a knockout hypercar that changes the way racing technology melds with the road.},
    }

  • J. Jarasz, “The skewed world of jan darasz,” Wilmott, vol. 2016, iss. 86, pp. 84-84, 2016. doi:10.1002/wilm.10553
    [BibTeX]
    @article {WILM:WILM10553,
    author = {Jarasz, Jan},
    title = {The skewed world of Jan Darasz},
    journal = {Wilmott},
    volume = {2016},
    number = {86},
    publisher = {John Wiley & Sons, Ltd},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.1002/wilm.10553},
    doi = {10.1002/wilm.10553},
    pages = {84--84},
    year = {2016},
    }

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