Black-Scholes
Importance sampling applied to Greeks for jump–diffusion models with stochastic volatility
In this paper, the authors develop a procedure to reduce the variance when numerically computing the Greeks obtained via Malliavin calculus for jump–diffusion models with stochastic volatility.
Rogue traders versus value-at-risk and expected shortfall
VAR and ES are ineffective to deter rogue trading
Validation of profit and loss attribution models for equity derivatives
The aim of this paper is to validate profit and loss attribution generated by daily movements of option prices as seen through their Black–Scholes (Black and Scholes 1973) and Merton (1973) implied volatilities.
Pricing multidimensional financial derivatives with stochastic volatilities using the dimensional-adaptive combination technique
In this paper, the authors present a new and general approach to price derivatives based on the Black–Scholes partial differential equation (BS-PDE) in a multidimensional setting.
What financialisation means for oil: Ilia Bouchouev of Koch
Investor demand now drives oil prices as much as physical fundamentals
Quant of the year: Jean-Philippe Bouchaud
Risk Awards 2017: Physicist takes on classic models with data and empirical research
Deconstructing correlation
Peter Austing introduces an analytic or semi-analytic valuation of basket options
Cross-dependent volatility
Julien Guyon introduces cross-dependent volatility models and calibrate them to market smiles
Small banks face rate options valuation model change
Negative rates causing pricing model rethink
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
FX volatility – An evolutionary story
Sponsored feature: Commerzbank
The damped Crank–Nicolson time-marching scheme for the adaptive solution of the Black–Scholes equation
This paper deals with error estimators and mesh adaptation for a space-time finite element discretization of the basic Black-Scholes equation. An interesting modern numerical mathematical technique for a fundamental pricing equation in finance is…
Cutting edge introduction: Funding holes in Black-Scholes
HSBC quant builds funding costs and haircuts into Black-Scholes option pricing formula
Funding in option pricing: the Black-Scholes framework extended
Wujiang Lou shows the impact of funding costs on option valuation
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…
Energy trading firms may rue the decline of quants
New areas for quant research are in abundance, but resources are not
Quants: how they shaped the modern energy market
Application of quantitative analysis to energy was far from smooth
Risk reaches 25-year anniversary
In celebration of our 25th anniversary this year, Risk re-publishes a landmark article by Fischer Black, offering a critique of the Black-Scholes model
In defence of FVA – a response to Hull and White
In defence of FVA