Category: Finance

investingInVol

Scientific American: Feature Article: A Calculus of Risk: May 1998

This 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…

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

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

Model Risk – FILL

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

Most 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…

The 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…

gs-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…

Outpereformance Options

This 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…