Cutting Edge
Cutting edge introduction: Hidden models for hidden costs
NYU quants use Bayesian techniques to sequence trades, considering trading costs and multiple assets
Two measures for the price of one
Harvey Stein combines risk-neutral and real-world measures into risk methodology
Quant ideas: Building a better LNG forward curve
An overview of effective methods for constructing long-term LNG forward price curves
Multiperiod portfolio selection and Bayesian dynamic models
Kolm and Ritter present a multiperiod, multi-asset selection model with transacion costs, kept computationally tractrable
Warehousing credit risk: pricing, capital and tax
Kenyon and Green model the effects to pricing of credit warehousing, capital and tax
FVA accounting, risk management and collateral trading
Albanese, Andersen and Iabichino present a method for accounting and risk managing FVAs
Cutting edge: Kriging smooth energy futures curves
Applying kriging to extract smooth curves from energy futures prices
Pricing and hedging variance swaps on a swap rate
A pricing tool for fixed-income volatility products is introduced
Backward induction for future values
A new framework for derivatives pricing with valuation adjustments
Robust valuation and hedging of tolling agreements and physical assets
Flexible, martingale duality-based method provides reliable valuation
KVA: capital valuation adjustment by replication
KVA are introduced to take into account the effect of capital on funding
Back-testing expected shortfall
Three easy-to-implement methods for back-testing expected shortfall
Commodity leveraged ETFs: Tracking errors, volatility decay and trading strategies
Tracking performance of ETFs is examined, with a focus on volatility decay
Quant ideas: Liquidity in commodity risk management
Liquidity plays a vastly underappreciated role in commodity markets
Cutting edge intro: Righting wrong-way risk
Models that describe wrong-way risk should move away from simplistic copula models, critics say.
Heston model: shifting on the volatility surface
Stochastic volatility model combining Heston vol model and CIR++
Path-consistent wrong-way risk
A copula-based model for wrong way risk
Cutting edge intro: history in the modelling
Bloomberg quant Guyon delivers an alternative to stochastic local volatility
Short-rate joint-measure models
A joint-measure model combining Q-measure and P-measure
Path-dependent volatility
Julien Guyon on path-dependent volatility models
Credit exposure models backtesting for Basel III
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas and Andreas Nawroth incorporate these guidelines into a…
Regulatory costs break risk neutrality
Regulations impose idiosyncratic capital and funding costs for holding derivatives. Idiosyncratic costs mean that no single measure makes derivatives martingales for all market participants. Chris Kenyon and Andrew Green demonstrate that regulatory…
Cutting edge: Incorporating forex volatility into commodity spread option pricing
Spread option pricing: importance of forex risk factors illustrated
Cutting Edge intro: maths versus machine
Banks can use maths - rather than special chips - to boost computing speed