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«Frequently Asked Questions in Quantitative Finance»





Probabilistic Cox, Injersoll & Ross Other DerivationsThe Monty Hall problemLognormal Monte Carlo STRIPS Hedging and the Partial Differential EquationWhat is the Best-Kept Secret in Quantitative Finance?August 2007 quantitative finance in disrepute Option pricesWhat is Put-Call Parity?Quants' salariesMean reversion What is CrashMetrics?Collateralized Mortgage Obligation (CMO) Principles of Financial Engineering by Salih NeftciWhat is Cointegration?Kissing frogs Convexity Magicians and MathematiciansHow Good is the Assumption of Normal Distributions for Financial Returns?Taylor SeriesPath dependence Asymptotic analysis Beta Exotic Options, Futures, and Other Derivatives by John HullFonts and layout Airforce OneWhat is Arbitrage?What People Get WrongCliquet option Sharpe, Lintner and Mossin What is a Coherent Risk Measure and What are its Properties?Dispersion Pass through Structured products Attribution Swap Aircraft armour Lesson 4: Sensitivity to ParametersCMS Stochastic volatilityBasket option Covering letter Simulations Annual returnsWhat is Asymptotic Analysis and How is it Used in Financial Modelling?There are no costs associated with borrowing stock for going short Chooser option SABR Digital option Repo Hagan, Kumar, Lesniewski and Woodward Asian option Superhedging Correlation Why do Quants like Closed-Form Solutions?What is a Utility Function and How is it Used?Black & Karasinski Yield curve Another one about birthdaysWhat are Low-Discrepancy Numbers?Default probability The Financial Modellers' ManifestoWhat is the Volatility Smile?Continuous-Time Limit of the Binomial ModelGender ratio -81 Harrison, Kreps and Pliska The Black-Scholes Formulae and the GreeksJump diffusionSABRMortgage Backed Security (MBS) Lesson 2: Supply and DemandLogistic Poisson processes What is the Capital Asset Pricing Model?Programme of studyCredit Default Swap (CDS) Linear or non-linear What is Meant by 'Complete' and 'Incomplete' Markets?Preface to the Second EditionMonte Carlo methodsRead the job specification Einftein'f brainteaserBase correlation Dice game TOO MUCH MONEY WILL GO INTO TOO FEW PRODUCTS What is Monte Carlo Simulation?Ponzi Schemes, Auditors, Regulators, Credit Ratings, and Other ScamsThe QuestionsWhat is the Difference Between the Equilibrium Approach and the No-Arbitrage Approach to Modelling?Future Stochastic Inverse floater Number of dimensions Hybrid CFA Miss Moneypenny Second-derivative terms Parisian option What is the Difference between a Quant and an Actuary?LIBOR-in-arrears swap Floating Rate Note (FRN) A Diffusion EquationSharpe ratio Paul Wilmott Introduces Quantitative Finance, Second Edition by Paul WilmottWhat is the Efficient Markets Hypothesis?The yield to maturity (YTM) or internal rate of return (IRR) Prices as expectationsPoisson* Finding banks Get it checked InterviewsDice gameThe Most Popular Search Words and Phrases on Wilmott.comGetting the message across Contingent premium option First-derivative terms Buzzwords Balls in a bagRainbow optionHYPER option And Now a Brief Unofficial History!CompensationFour switches and a lightbulb What is Arbitrage Pricing Theory?Four switches and a lightbulbBalloon option Colours Boyle What is Ito's Lemma?Index amortizing rate swap Gamma What is a Wiener Process/Brownian Motion and What are its Uses in Finance?Cauchy Lesson 1: Lack of DiversificationFAQs Sums of uniform random variablesStatic hedging Another one about birthdays Asymptotic analysis Functional form of coefficients What are the Greeks?Heath, Jarrow and Morton Colour Structural modelsTime dependence Ants on a circleFama Other terms? Making a difference Its Einstein's brainteaser Can I use Real Probabilities to Price Derivatives?Diff (erential) swap Student's t What is the Central Limit Theorem and What are its Implications for Finance?Wiener Preface to the First EditionQuestions for the interviewerWhy Does Risk-Neutral Valuation Work?Be true to yourself Be polite Paul & Dominic's Guide to Getting a Quant JobWhat is the Kelly Criterion?What is Maximum Likelihood Estimation?Cap Vega Lesson 11: Too Much PrecisionSkew Ho and Lee THERE WILL BE MORE ROQUE TRADERS Put option Shadow greeks Schonbucher's stochastic implied volatility Economics Makes My Brain HurtApply for the right job CDO Bond options Embedded decisions Finite difference EfficiencyChi square Outperformance option Forward Rate Agreement (FRA) Swaptions Bermudan swaption Make sure you can be contacted Functional form of coefficients Science in Finance VI: True Sensitivities, CDOs and CorrelationsHanging a pictureQuanto Deterministic models The Most Popular Probability Distributions and Their Uses in Finance Good clothes The market price of risk as a random factor What is Option Adjusted Spread?What is Bootstrapping using Discount Factors?Forward How? Barrier option SABR Pirate puzzleVolatility EfficiencyWhat is a Poisson Process and What are its Uses in Finance?Longstaff & Schwartz Balls in a bag Square-root model/Heston (1993) Fixed-income markets Hit-and-run taxiSwaption Total Return Swap (TRS) What is a Jump-Diffusion Model and How does it Affect Option Values?Merton, again What is Value at Risk and How is it Used?Black 1976What is the Black—Scholes Equation?Do not sound as if you work for Accenture Fast drift and high volatility in stochastic volatility models Coupe option Gender ratioThe forward equationScience in Finance IV: The Feedback EffectSeries solutions Stochastic volatility Callable Vasicek Coherent measures EssaysAircraft armourCollateralized Debt Obligation squared (CDO2) Implied CAPMDelta hedging Break/Cancellable forward Lesson 10: CalibrationAsset swap Collateralized Debt Obligation (CDO) Strangle Spot rate modelsThe V term Exploring portfolio statistics Lesson 3:Jensen's Inequality ArbitrajeDigital Bermudan option How Do I Dynamically Hedge?Popular Quant BooksBe confident Normal or Gaussian Muddy facesKnock-in/out option Binary option Asking questions Convertible Show you can do things Vomma or Volga Normal distribution Pareto Be punctual Muddy faces Copula What is the Finite-Difference Method?Calibration Multi-dimensional lognormal random walksGamma Twelve Different Ways to Derive Black-ScholesEsotericaCrash (Platinum) hedging Cox, Ross and Rubinstein Variance swap Hit-and-run taxi The Oracle at Delphi Brainteasers Theta Einstein What is GARCH?What are the Bastard Greeks?What is Dispersion Trading?ManifestoWriting a CVHow much will transaction costs reduce my profit? kgof berries Interest rate swap What is the correct delta? Zeroth law of holes What is Modern Portfolio Theory?Closer to the edge or the centre? Local TimeSleep regularly, sleep often Minimum and maximum correlation Decision features Matching birthdays Volatility is constant Why? What is Extreme Value Theory?Two thirds of the averageUtility TheoryWhat are the Most Useful Performance Measures?Barrier option Ones and zeros Lesson 8: Reliance on Closed-Form SolutionsThe spot rate and forward rates Lesson 6: Reliance on Continuous Hedging (Arguments)Interests and hobbies Compound option What is the Market Price of Risk?Minimum and maximum correlationConvertible bond American option What is a Free-Boundary Problem and What is the Optimal-Stopping Time for an American Option?Hedge Variance swap Decision features Show some market insight CONVEXITY WILL BE MISSED Perfume and aftershave How Robust is the Black-Scholes Model?Swap Asset swap Family membersWhat is Calibration?Ages of three children Li Interview overlap Russian rouletteCommon ContractsName and Shame in Our New Blame Game!What are Copulas and How are they Used in Quantitative Finance?SnowflakeDiscrete/Continuous Ages of three childrenLevy What is Girsanov's Theorem, and Why is it Important in Finance?Sortino ratio Science in Finance II: '... ists'What? The doors Focus Credit Derivatives Pricing Models by Philipp SchonbucherFloor What is Jensen's Inequality and What is its Role in Finance?Credit markets Miss MoneypennyBrainteasersArbitrage LIBOR How big is my hedging error? GARCH Mobile phone interviews Results and Ideas: Two Classical PutdownsPricing derivatives The AnswersAirforce One Covering a chessboard with dominoesCQF Last job first What is Meant by the 'Value' of a Contract?Biased coins Option Valuation under Stochastic Volatility by Alan LewisGamma hedging ExamplesCan I optimize my hedging when there are transaction costs? The Complete Guide to Option Pricing Formulas by Espen Gaarder HaugUnberstanb the process Ornstein-Uhlenbeck process Show that you can do things s Cheyette, Barrett, Moore and Wilmott What you need to provekg of berriesDelta Smile Hull & White AppearanceLesson9: Valuation is Not LinearThorp Mellin TransformNeatness is good Call option Convexity Things to Look Out For in Exotic ContractsVanna Modigliani-Modigliani measure Programme of studySpeed Ho & Lee Vasicek Treynor ratio What are the Forward and Backward Equations?Equity, Foreign Exchange and CommoditiesBasket Cap Richardson Quantlib Compensation The order of an option Number of dimensions Market maker Can I Reverse Engineer a Partial Differential Equation to get at the Model and Contract?Himalayan option Finite-difference methodsAccrual Markowitz Reduced formCloser to the edge or the centre?Vega hedging Information ratio American option Black—Scholes for AccountantsParameters as VariablesWhy is calibration unstable?MORE HEDGE FUNDS WILL COLLAPSE Bachelier Name Gumbel Black, Scholes and Merton FrustrationBrace, Gatarek and Musiela Two-factor modelsTwo headsDuration Lookback option The Concepts and Practice of Mathematical Finance by Mark JoshiWhich Numerical Method should I Use and When?Transactions costs Boundary/final conditions Why is the Lognormal Distribution Important?There are no arbitrage opportunities PDE Models and EquationsRange note Lesson 7: FeedbackInverse normal Advanced Modelling in finance Using Excel and VBA by Mary Jackson and Mike StauntonLaplace Numerical integrationLesson 12: Too Much ComplexityMartingalesBookworm Why Hedge?Barbarians Green's functions Duration Risk neutral MBS Equity, FX and commodity markets Term independent of V Hull & White PrefaceMonte Carlo Methods in Finance by Peter JackelRegression Science in Finance IX: In Defence of Black, Scholes and MertonIt Is and It Isn'tBrace, Gatarek & MusielaHeard on the Street by Timothy CrackMake eye contact Boundary/final conditions Quanto Jewellery Correlation markets TurnoverRussian rouletteSobol' Paul & Dominic Find out more about the job Be honest CDS PDF Two heads The Monty Hall problem The backward equationHeath, Jarrow & MortonMargin hedging VOLATILITY WILL INCREASE ENORMOUSLY AT TIMES FOR NO ECONOMIC REASON CreditWhat is the LIBOR Market Model and its Principal Applications in Finance?How is Risk Defined in Mathematical Terms?Weibull Constant Maturity Swap (CMS) Hanging a picture RISK MANAGEMENT WILL FAIL What is Serial Autocorrelation and Does it Have a Role in Derivatives?Caps and floors CORRELATION PRODUCTS WILL BLOW UP DRAMATICALLY GOOD SALESMEN WILL HOODWINK SMART PEOPLE Dupire, Rubinstein, Derman and Kani Bonus Lesson 13: The Binomial Method is RubbishStraddle Passport option Swaptions /2 modelPaul Wilmott on Quantitative Finance, Second Edition by Paul WilmottCash flows Be prepared QuizTurnover s Sobol', Faure, Hammersley, Haselgrove and Halton... GARCH-diffusion The doorsReturns are normally distributed Rho Asian option Ones and zerosGamma The underlying is lognormally distributed What is Marking to Market and How Does it Affect Risk Management in Derivatives Trading?Basis swap Find the volatilityApproximations The Same Old Same OldPOLITICIANS AND GOVERNMENTS WILL REMAIN COMPLETELY IN THE DARK The Quantitative Finance TimelineAnnual returns Fixed IncomeMatching birthdaysExtendible option/swap Hedging is continuous Snowflake EfficiencyBookwormUrban planningDimensionality Intuition Forward-start option Biased coinsTwo thirds of the average Expected loss Ratchet Volatility ArbitrageThe Commonest Mistakes in Quantitative Finance: A Dozen Basic Lessons in Commonsense for Quants and Risk Managers and the Traders Who Rely on ThemWhat are the Stupidest Things People have Said about Risk Neutrality?Science in Finance I Revisited: Supply and Demand, and Spoon BendingUniform Urban planning Linear or non-linear Set traps What are the Different Types of Mathematics Found in Quantitative Finance?Make-up C++ Design Patterns and Derivatives Pricing by Mark JoshiDiscrimination methods The lognormal random walkCovering a chessboard with dominoes Deterministic Econometric models Programme of studyAvellaneda and Paras ExponentialScience in Finance VII: Risk Management — What is the Point?The Oracle at DelphiExponential Collateralized Debt Obligation (ECDO) Hawai'ian option There are no transaction costs Reverse repo Change of NumerairePirate puzzle Uncertain volatility Brennan & Schwartz Lesson 5: CorrelationThis is No Longer Funnys Samuelson Dates Hull & White (1987) Delta What is Volatility?Sums of uniform random variables Multiple CVs Fong & Vasicek Read your CV Risk Ants on a circle Brown Can I optimize my hedge? 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