Quantitative financial modelling seems to employ both the language and techniques of physics, but how similar are the two disciplines? Emanuel Derman comments on the…

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NEW YORK, September 7, 2000 SunGard Trading and Risk Systems and the International Association of Financial Engineers (IAFE) today announced that Emanuel Derman has been…

Comments closedI’m very pleased and very honored to be able to introduce Dr Oldrich Vasicek here today on his induction into the Derivatives Hall of Fame.…

Comments closedWhen I was in grade school we used to build model airplanes out of kits. The frame was made out precut pieces of balsa wood,…

Comments closedInvestors in equity options experience two problems that compound each other. In contrast to fixed-income and currency markets, there are thousands of underlyers and tens…

Comments closedrisk-regimes_of_volatility Since the 1987 stock market crash, the S&P 500 index options market has displayed a persistent implied volatil- ity skew. How should the skew…

Comments closedVolatility swaps are forward contracts on future realized stock volatility. Variance swaps are similar contracts on vari- ance, the square of future volatility. Both of…

Comments closedIn this paper we present an arbitrage pricing framework for valuing and hedging contingent equity index claims in the presence of a sto- chastic term…

Comments closedThe insight behind the Black-Scholes formula for options valuation is the recognition that, if you know the future volatility of a stock, you can replicate…

Comments closedPublished in Futures and Options World 1998 Special Supplement on the 25th Annivesary of the Publication of the Black-Scholes Model In the beginning was the bond,…

Comments closedScientific American, May 1998 Months before El Niño driven storms battered the Pacific Coast of the U.S., the financial world was making its own preparations…

Comments closedDerivatives Strategy, April 1998 How far can models be trusted? How can they be checked and adapted? What other factors need to be considered? The…

Comments closedWhat is the purpose of modelling, in any field? Clearly, it is divination whether foretelling the future, or controlling it. So my task here is…

Comments closedWhat is the purpose of modelling, in any field? Clearly, it is divination whether foretelling the future, or controlling it. So my task here is…

Comments closedThis note outlines a methodology for hedging and trading index volatilities. In the bond world, forward rates are the arbitrage-free interest rates at future times…

Comments closedPart 2, expands on this presentation. Somewhat more more exotic barrier options are explored, and a summary of the mathematical theory behind the valuations is…

Comments closedBarrier options are extensions of standard stock options. Standard calls and puts have payoffs that dependon one market level: the strike. Barrier options have payoffs…

Comments closedI first met Fischer in 1986, several months after I came to work in Fixed Income Research at Goldman, Sachs & Co. I knew little…

Comments closedI’m very pleased and honored to be here and to say a few words about Fischer on this occasion. But, both for my sake and…

Comments closedPublished in RISK, 10(6) Jun. 1997, p. 75 I often interview job candidates with degrees in science or finance. I `m always glad if they…

Comments closedIf you examine the structure of listed index options prices through the prism of the implied tree model, you observe the local volatility surface of…

Comments closed(RISK, 9-5 May 1996, pp. 139-145, pp. 34-37) Model Risk – FULL This report analyzes the assumptions and risks involved in using models to value…

Comments closedIn options markets where there is a significant or persis- tent volatility smile, implied tree models can ensure the consistency of exotic options prices with…

Comments closedMost real-world barrier options have no analytic solutions, either because the barrier structure is complex or because of volatility skews in the market. Numerical solutions…

Comments closedNovember 1994 – A one-factor convertible model now used by many hedge funds. Convertible bonds are derivative securities; they contain options on the underlying common…

Comments closedThe Journal of Derivatives, 2-4 Summer 1995, pp. 78-95 This paper presents a method for replicating or hedging a target stock option with a portfolio…

Comments closedgs-volatility_smile RISK, 7-2 Feb.1994, pp. 139-145, pp. 32-39 The market implied volatilities of stock index options often have a skewed structure, commonly called “the volatility…

Comments closedTo me, outperformance options1 are especially interesting because of the alternating layers of complexity and simplicity you discover as you probe more deeply into their…

Comments closedThis article describes a model of interest rates that can be used to value any interest-rate-sensitive security. In explaining how it works, we concentrate on…

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