348 Frequently Asked Questions In Quantitative Finance
Stochastic Random. The branch of mathematics involving the
random evolution of a quantities usually in continuous time
commonly associated with models of the financial markets and
derivatives. To be contrasted with deterministic.
Structured products Contracts designed to meet the specific
investment criteria of a client, in terms of market view, risk
and return.
Swap A general term for an over-the-counter contract in
which there are exchanges of cashflows between two parties.
See page 324.
Swaptions An option on a swap. They are commonly Bermu-
dan exercise. See page 324.
VaR Value at Risk, an estimate of the potential downside
from one’s investments. See pages 40 and 48.
Variance swap A contract in which there is an exchange of the
realized variance over a specified period and a fixed amount.
See page 325.
Volatility The annualized standard deviation of returns of
an asset. The most important quantity in derivatives pricing.
Difficult to estimate and forecast, there are many competing
models for the behaviour of volatility. See page 151.
Yield curve A graph of yields to maturity versus maturity (or
duration). Therefore a way of visualizing how interest rates
change with time. Each traded bond has its own point on the
curve.
Esoterica And finally, some rather more exotic word or phrase
searches, without any descriptions:
ArtofWar;Atlas Shrugged; Background check; Bloodshed;
Bonus; Deal or no deal; Death; Depression; Drug test; Female;
Gay; How to impress; James Bond; Lawsuit; Lonely; Sex; Suit;
Test; The; Too old
From this final list one should be able to build up a personal-
ity profile of the typical quant.
