Frequently Asked Questions In Quantitative Finance

162 Frequently Asked Questions In Quantitative Finance In the stochastic volatility world we can look at the sec- ond derivative ...

Chapter 2: FAQs 163 Stochastic volatility models have greater potential for capturing dynamics, but the problem, as always, is k ...

164 Frequently Asked Questions In Quantitative Finance What is GARCH? Short Answer GARCH stands for Generalized Auto Regressive ...

Chapter 2: FAQs 165 would like to know what it is going to be in the future, if not precisely then perhaps know its future expec ...

166 Frequently Asked Questions In Quantitative Finance Sinceα+β<1 this is exponentially decay of the aver- age to its mean. A ...

Chapter 2: FAQs 167 difficulties in practice. These difficulties can be associ- ated with having insufficient data; the (log)li ...

168 Frequently Asked Questions In Quantitative Finance REGARCH Range-based Exponential GARCH. This mod- els the low to high rang ...

Chapter 2: FAQs 169 References and Further Reading Engle, R 1982 Autoregressive Conditional Heteroskedasticity with Estimates of ...

170 Frequently Asked Questions In Quantitative Finance How Do I Dynamically Hedge? Short Answer Dynamic hedging, or delta hedgin ...

Chapter 2: FAQs 171 money in either case (or even if you hedge using a volatility somewhere in the 20 to 40 range) as long as yo ...

172 Frequently Asked Questions In Quantitative Finance smooth, monotonically increasing P&L but at the cost of not knowing h ...

Chapter 2: FAQs 173 simply 1 2 σ (^2) S (^2) δt(φ (^2) −1). This is how much you make or lose between each rebal- ancing. We ca ...

174 Frequently Asked Questions In Quantitative Finance trading the underlying will increase. Can we quantify transaction costs? ...

Chapter 2: FAQs 175 many other possible strategies involving hedging when the underlying or delta moves a specified amount, or e ...

176 Frequently Asked Questions In Quantitative Finance What is Dispersion Trading? Short Answer Dispersion trading is a strategy ...

Chapter 2: FAQs 177 If you know the implied volatilities for the individual stocks and for the index option then you can back ou ...

178 Frequently Asked Questions In Quantitative Finance Why might dispersion trading be successful? Dynamics of markets are more ...

Chapter 2: FAQs 179 What is Bootstrapping Using Discount Factors? Short Answer Bootstrapping means building up a forward interes ...

180 Frequently Asked Questions In Quantitative Finance As a simple example, suppose you know that a zero- coupon bond, principal ...

Chapter 2: FAQs 181 in practice, we have to impose some conditions on the functionr(t). Forward rates should be positive, or th ...