Technical paper/Options
Cutting edge introduction: Funding holes in Black-Scholes
HSBC quant builds funding costs and haircuts into Black-Scholes option pricing formula
Smile transformation for price prediction
Prediction of arbitrage-free option prices that outperform existing models
Classic cutting edge: Swing options and the quest for valuation
Energy Risk presents a classic paper on swing options pricing by Patrick Jaillet, Ehud Ronn and Stathis Tompaidis, which was first published in 1998. It introduced the so-called binomial forest method, which was influential in the development of pricing…
Cutting edge: Impact of execution behaviour on valuation of optional financial contracts
Expected payoff maximisation is a commonly assumed strategy in valuation. S Hossein Hosseini, Qiaoyan Bian, Jay Chen and John Jiang suggest that execution strategies may vary due to complex option structures and their resulting uncertainties. Using a…
Adjoint Greeks made easy
Adjoint Greeks made easy
Cutting Edge introduction: requiem for a probabilist
Requiem for a probabilist
Filling the gaps
Filling the gaps
Marking systemic portfolio risk with the Merton model
Marking systemic portfolio risk with the Merton model
Cutting edge technical: Carbon derivatives pricing
Carbon derivatives pricing: an arbitrageable market
Simulations with exact means and covariances
Attilio Meucci presents a simple method to generate scenarios from multivariate elliptical distributions with given sample means and covariances, and shows an application to the risk management of a book of options
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…
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…
Selling risk at a premium
Option strategies
Real option valuation and equity markets
Many non-financial assets can be viewed as ‘real options’ linked to some underlying variable such as a commodity price. Here, Thomas Dawson and Jennifer Considine show that the stock price of a well-known electricity generating company is significantly…
Copula vulnerability
Counterparty credit risk
Bachelier’s ‘Theory of speculation’
100 years of risk management
Pricing liquidity into derivatives
Volatility
Uncertain volatility
Market risk
Regimes of volatility
Options markets