My quant friend told me that the Hull-white model requires calibration via PDE solver. It can take a few seconds just to price a deal. If a spreadsheet has many deals the computational cost can add p to become non-trivial.
In contrast, the SABR model is much simpler – find a vol and plug it into BS formula.
Real story — you buy some landed asset which causes pollution. You are liable for the clean-up cost.
Real story — buy a rundown house at a dirty cheap price. Unable to sell, you still need to pay property tax.
- regression — beta is named in the context of a regression against the market factor
- cov/var — beta is defined mathematically as this ratio
- excess return — in the regression, both the explanatory variable and the dependent variable are excess returns.
- portfolio — (due to regression) a portfolio beta can be computed from weighted average
above 1 — means the regression slope is steeper than the “market”
equals 1 — is the market itself or any “normal” security
below 1 — means the regression slope is more gentle than the “market”
An option “paper” is a right but not an obligation, so its holder has no obligation, so this paper is always worth a non-negative value.
if the option holder forgets it, she could get automatically exercised or receive the cash-settlement income. No one would go after her.
In contrast, an obligation requires you to fulfill your duty.
A fwd contract to buy some asset (say oil) is an obligation, so the pre-maturity value can be negative or positive. Example – a contract to “buy oil at $3333” but now the price is below $50. Who wants this obligation? This paper is a liability not an asset, so its value is negative.
… = $18972 vdate:17/12/2013
Background — in valuing future cashflows, we often need to discount some amount of dollars to some date ..
I don’t know why many money market trading desks cut across asset classes and trade, in addition to money market instruments,
Many companies bundle MM and FX together. I feel they are closesly related.
label – fwd deal
The basic relationship (between spot price, fwd contract price, T-maturity bond price..) is intuitive, low-math, quite accessible to the layman, so I decided to really understand it, but failed repeatedly. Now I feel it’s not worth any further effort. It’s not quitting. It’s saving effort.
– interviewers won’t ask this
– real projects won’t deal with it, because the (arbitrage-enforced) precision mathematics simply doesn’t manifest in the real data, perhaps due to bid/ask spread
– Only financial math literature makes extensive use of it
I think this is like the trigonometry or the integration techniques — you seldom need them outside academics.