Technical papers / Risk magazine
Cutting edge introduction: perturbing the smile
Original headline:
Source: Risk magazine
There has been a long history of interaction between physics and quantitative finance. Now a technique for finding the effects of small fluctuations in quantum fields is being used to get a handle on the...
Original headline:
Source: Risk magazine
It is well known that the quanto adjustment in the drift of the underlying has a significant impact on the prices of quanto options. Alexander Giese points out that an additional quanto adjustment in the...
Original headline:
Source: Risk magazine
Lorenzo Bergomi and Julien Guyon derive an expansion of the volatility surface of general stochastic volatility models at second order in volatility of volatility that is accurate for a wide range of strikes....
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More Technical papers / Risk magazine articles
Cutting edge introduction: exploring constant maturity asset swaps
Original headline:
Source: Risk magazine
New product design has been on the wane for the past few years, but there are still ideas floating around. This month’s technical section includes an article exploring a potentially interesting market – derivatives referencing asset swap spreads....
Stress testing with fully flexible causal inputs
Original headline:
Source: Risk magazine
Propagating causal stress tests on selected risk factors to all the risk drivers is a challenging task. Attilio Meucci relies on entropy pooling to address this issue
Constant maturity asset swap convexity correction
Original headline:
Source: Risk magazine
The current high volatility in government bond markets may lead investors to try to hedge their exposure to floating-asset swap spreads. Mario Pucci obtains an analytical convexity correction for the asset swap spread that is useful for pricing constant...
Cutting Edge introduction: viva cross-vegas
Original headline:
Source: Risk magazine
The sensitivity of single-rate derivatives to implied volatility is traditionally only considered with respect to the underlying fixing, in effect collapsing the term structure to a point. But a full set of implied volatilities can be found using a new...
CMS: covering all bases
Original headline:
Source: Risk magazine
Simon Cedervall and Vladimir Piterbarg develop a new vanilla model that directly links constant maturity swap (CMS) and payment convexity in general payouts to volatilities of swaptions of all relevant tenors, as well as prices of CMS spread options,...
Downgrade termination costs
Original headline:
Source: Risk magazine
Ratings-based (RB) additional termination event (ATE) clauses in International Swaps and Derivatives Association agreements can have a significant impact on the valuation of derivatives portfolios when rating events occur. Fabio Mercurio, Roberto Caccia...
Cutting Edge introduction: risky contributions
Original headline:
Source: Risk magazine
Value-at-risk is usually calculated via Monte Carlo simulation, making it difficult to see the contributions from different risks. But in some circumstances approximate formulas can be derived that greatly save computing power – and explicitly show...
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