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Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

The beauty of Monte Carlo simulation is that it can be used to price any European financial derivative contract, of which the terminal payoff is expressed as a function of D terminal underlying factors by simulating the terminal values of these factors as of the contract's maturity date. It turns out, the successful execution of a Monte Carlo simul...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

In my previous article  I showed how one can use Deriscope in Excel to calculate the price of a particular type of a structured product that pays the minimum of two equity indices observed at some specified future terminal time. As example was used the Trigger Plus note issued by Morgan Stanley on April 1, 2019, which is based on the value of ...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

Up until the financial crisis of 2008, the price calculation of an interest rate swap involved only the so-called Libor curve. The latter was essentially the discount factors (or equivalently zero rates or forward rates) implied by market-traded instruments, such as deposits, futures, forwards and swaps. The Libor curve was used to derive everythin...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

Various structured products can be precisely priced in Excel using Deriscope and its underlying QuantLib analytics. In this article I will focus on the Trigger Plus product issued by Morgan Stanley on April 1, 2019. It is based on the value of the worst performing of the Dow Jones Industrial Average and the Russel 2000 Index due April 4, 2024. It o...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

​ The basic concepts of spot fx rates , forward fx contracts, fx swaps and the construction of foreign yield curves out of fx forward rates have been described in detail in my previous fx rates article . While these instruments cover the short end of the maturity spectrum – typically about a year -, the tenor of so-called currency swaps (also ...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

​ Assume you possess N d units of a currency DOM regarded as domestic currency. For example, you live in the US and hold 1,000 USD , ie. N d = 1,000 and DOM = USD . For whatever reasons, you want to replace this money with their equivalent number of units N f of another currency FOR regarded as foreign currency. For concreteness think of FOR like i...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

You are all familiar with the concept of bond Duration , which tells us how much a bond's price changes if its yield goes up or down by a small amount. While there exist several different Duration definitions that produce slightly different results, the one that is most closely related to the Key Rate Duration is the Modified Duration D , which may...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

Long are the dates when all-purpose risk free yield curves were produced out of deposits, futures and swaps. Since the credit crisis of 2007/08, banks realized they should use different curves for different purposes. In the intervening years, quants have proven mathematically that uncollateralized contingent flows should be discounted using a curve...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

Overnight Index Swaps ( OIS ) may be priced in Excel using the free and open source derivatives analytics QuantLib library through the Deriscope Excel interface. An OIS contract is very similar to a plain vanilla interest rate swap , the only difference being that each payment in the floating leg is calculated according to a floating number F that ...

Comment0 Nov 20 2019 18:02 keyboard_arrow_downkeyboard_arrow_up Comment0 language

The purpose of this article is to show you step-by-step how you can calculate the Value at Risk (VaR) of any portfolio by generating all simulation samples in the spreadsheet. This is great for understanding what's going on but it becomes too complex and slow when the number of samples generated by the simulation exceeds 100. If you don't...

 

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