Frequently Asked Questions In Quantitative Finance

142 Frequently Asked Questions In Quantitative Finance What is a Jump-Diffusion Model and How Does It Affect Option Values? Shor ...

Chapter 2: FAQs 143 Brownian motion. The model for equities, for example, is often taken to be dS=μSdt+σSdX+(J−1)Sdq. dqis as de ...

144 Frequently Asked Questions In Quantitative Finance the logarithm ofJis Normally distributed with standard deviationσ′and if ...

Chapter 2: FAQs 145 Lewis, A Series of articles inWilmottmagazine September 2002 to August 2004 Merton, RC 1976 Option pricing w ...

146 Frequently Asked Questions In Quantitative Finance What is Meant by ‘‘Complete’’ and ‘‘Incomplete’’ Markets? Short Answer A ...

Chapter 2: FAQs 147 Consider, for example, the binomial model in which there are two states of the world at the next time step, ...

148 Frequently Asked Questions In Quantitative Finance hedge the option with the stock you don’t care whether the stock rises or ...

Chapter 2: FAQs 149 the behaviour of the underlying is random. Options on terrorist acts cannot be hedged since terrorist acts a ...

150 Frequently Asked Questions In Quantitative Finance Whenever you have risk that you can’t get rid of you have to ask how that ...

Chapter 2: FAQs 151 What is Volatility? Short Answer Volatility is annualized standard deviation of returns. Or is it? Because t ...

152 Frequently Asked Questions In Quantitative Finance assume that the volatility of the next sixty days is the same as over the ...

Chapter 2: FAQs 153 and demand. Is that the same as the market taking a view on future volatility? Not necessarily because most ...

154 Frequently Asked Questions In Quantitative Finance variance, sometimes one uses high-low-open-close data and not just closin ...

Chapter 2: FAQs 155 prices better than deterministic models. However, differ- ent markets behave differently. Part of this is be ...

156 Frequently Asked Questions In Quantitative Finance Javaheri, A 2005Inside Volatility Arbitrage. John Wiley & Sons Lewis, ...

Chapter 2: FAQs 157 What is the Volatility Smile? Short Answer Volatility smile is the phrase used to describe how the implied v ...

158 Frequently Asked Questions In Quantitative Finance Long Answer Let us begin with how to calculate the implied volatil- ities ...

Chapter 2: FAQs 159 Actual volatility is something you can try to measure from a stock price time series, and would exist even i ...

160 Frequently Asked Questions In Quantitative Finance Stock returns are not normal, stock prices are not log- normal. Both have ...

Chapter 2: FAQs 161 positive value since the payoff can never be negative. This imposes a constraint on the curvature of the smi ...