Quantitative analysis
Weighted Monte Carlo
Most pricing models assume an asset behaviour and calibrate its parameters to fit the market. Weighted Monte Carlo is able to calibrate the market without making specific assumptions about the asset behaviour. When only vanilla products are considered,…
Smiling hybrids
Vladimir Piterbarg develops a multi-currency model with foreign exchange skew suitable for valuation and risk management of forex-linked hybrids, in particular power-reverse dual-currency (PRDC) swaps. The emphasis of the article is on model calibration…
A standard practice?
Cutting Edge: Solvency risk
Citigroup Funding
Quant Analysis
Post Office
Quant Analysis
ING Bank
Quant Analysis
ABN Amro
Quant Analysis
Beyond Black-Litterman: views on non-normal markets
In normally distributed markets, the Black-Litterman technique allows managers to construct portfolios that account for their views on a set of expected returns. Attilio Meucci extends the technique to generic market distributions and shows an…
Structural credit calibration
Damiano Brigo and Massimo Morini introduce first-passage models with time-varying volatility and random default barriers, while illustrating their tractability, exact calibration and economic interpretation. The models' behaviour on Parmalat data prior…
A structural approach to EDS pricing
Structural credit models have been used to price bothcredit and equity derivatives, making them a naturalframework to price equity default swaps. Using such aframework, Elena Medova and Robert Smith derivean analytic expression for the EDS spread,…
Wrong way risk modelling
Beyond its potential impact on counterparty risk exposure, the wrong way risk arising in some derivatives transactions raises important modelling challenges. Christian Redon presents two suitable models based on conditional expected exposure. Among…
Calibrating inflation
Cutting Edge: Inflation Models
Caja Segovia
Quant Analysis
Aviva
Quant Analysis
West Bromwich
Quant Analysis
Banco Cooperativo Espanol
Quant Analysis
Computation methods - Smoking adjoints: fast Monte Carlo Greeks
Monte Carlo calculation of price sensitivities for hedging is often very time- consuming. Michael Giles and Paul Glasserman develop an adjoint method to accelerate the calculation. The method is particularly effective in estimating sensitivities to a…
Inflation-indexed securities - Inflation with a smile
In the current inflation-indexed markets, most traded options have zero or even negative strikes. This highlights the need for a smile-consistent valuation of caps and floors on inflation rates. To this end, Fabio Mercurio and Nicola Moreni propose a…
Optimal allocation to hedge funds
Lionel Martellini and Mathieu Vaissie argue that it is only by taking into account the exact nature and composition of their existing portfolio that institutional investors can maximise the benefits they can expect from investing in hedge funds. To this…
Tips options in the Jarrow-Yildirim model
Marc Henrard proposes an explicit pricing formula for inflation bond options using the Jarrow-Yildirim model. The formula resembles that for coupon bond options in the Heath-Jarrow-Morton model
A practical operational risk scenario analysis quantification
Thomas Alderweireld, João Garcia and Luc Léonard define an operational risk scenario analysis and its quantification technique, leading to the determination of the loss distribution characteristics.
Bradford & Bingley
Quant Analysis
BCC Caravaggio
Quant Analysis
BNP Paribas
Quant Analysis