VIII. Quant Interview Questions · 14. novembre 2023

Which of the following statements about Volga is most accurate? A. Volga is the rate at which vega changes with respect to the underlying price B. High Volga values imply that options are more sensitive to kurtosis risk of the underlying asset C. Volga becomes particularly important when trading binary options due to their vega profile D. All else being equal, an option with a longer time to maturity will always have a higher Volga than an option with a shorter time to maturity ------------- B....

III. Quantitative Finance Applications · 14. novembre 2023

In the Black-Scholes model, N(d2) calculates the probability of a call option being in the money at expiration, balancing its potential profitability and expected exercising cost. This risk-neutral measure assumes investments grow at a risk-free rate, crucial for arbitrage-free option pricing. #BlackScholesModel #RiskNeutralValuation #OptionPricing #N(d2)Explained

III. Quantitative Finance Applications · 11. novembre 2023

The Jump-to-Default Approach in option trading, modeled by an SDE, highlights how sudden stock price drops (J) affect low strike call options, especially under high credit risk. This contrasts with the Black-Scholes model, which assumes continuous price movements. In high-risk scenarios, the market often lowers the value of these options, factoring in potential defaults, and adjusts implied volatility accordingly. #OptionPricing #CreditRisk #FinancialMarkets #TradingStrategies #InvestmentRisk

III. Quantitative Finance Applications · 05. novembre 2023

Put-Call Symmetry (PCS) links European put and call option prices via the forward price of the underlying asset. It requires frictionless markets, no arbitrage, zero drift, and symmetric asset returns. PCS is practical for pricing and hedging exotic options, offering a simpler alternative to dynamic hedging by balancing put and call strike prices against the forward price.

III. Quantitative Finance Applications · 04. novembre 2023

Mean square hedging minimizes the gap between a hedging portfolio and an exotic option's payoff at maturity. It involves dynamic adjustments of holdings in risky and risk-free assets, guided by solving a stochastic differential equation and often requiring numerical methods like Monte Carlo simulations for implementation.

III. Quantitative Finance Applications · 08. septembre 2023

Unpack the myth that option Delta equals the probability of expiring in-the-money. Dive into risk-neutral valuation and the Black-Scholes model, where assets grow at a risk-free rate, making Delta an unreliable real-world probability indicator. Explore the distinction for smarter option trading. #OptionTrading #BlackScholes #RiskNeutralValuation

III. Quantitative Finance Applications · 19. août 2023

Explore the connection between Tesla's advanced speed regulator and the concept of gamma neutrality in options trading. While delta signifies the speed (akin to an option's price movement relative to its asset), gamma represents acceleration, indicating how delta evolves. Achieving gamma neutrality in trading parallels maintaining both speed and acceleration in a Tesla, ensuring a predictable and smooth drive.

III. Quantitative Finance Applications · 12. août 2023

Discover how to price a vanilla interest rate swap in the easiest way possible...