Technical paper
China's impact on price shocks in the world oil markets
Research Papers
Vanilla option replication for ALM shortfall risk
Technical papers
Smile dynamics III
In two articles published in 2004 and 2005 in Risk, Lorenzo Bergomi assessed the structural limitations of existing models for equity derivatives and introduced a new model based on the direct modelling of the joint dynamics of the spot and the implied…
Rates squared
Vladimir Piterbarg introduces a conveniently parameterised class of multi-factor quadratic Gaussian models, develops calibration formulas and explains the advantages of this class of models over alternatives currently available for the pricing and risk…
Error of VAR by overlapping intervals
When overlapping intervals in time series are used, volatility and price changes' percentiles are underestimated. Consequently, value-at-risk is also underestimated. Heng Sun, Izzy Nelken, Guowen Han and Jiping Guo measure the size of this underestimation
Joining the SABR and Libor models together
Fabio Mercurio and Massimo Morini propose a Libor market model consistent with SABR dynamics and develop approximations that allow for the use of the SABR formula with modified inputs. They verify that the approximations are acceptably precise, imply…
Hedge fund replication products
In 2007 an EDHEC study on passive hedge fund replication1 highlighted the inability of existing products to meet investors' needs for hedge fund replication. The factor replication approach fails to deliver accurate out-of-sample replication because of…
Pricing and hedging of variable annuities
Technical papers
Delta and vega hedging in the SABR and LMM-SABR models
Riccardo Rebonato, Andrey Pogudin and Richard White examine the hedging performance of the SABR and LMM-SABR models using real market data. As a by-product, they gain indirect evidence about how well specified the two models are. The results are…