Last month, efinancialcarreeers published a post, stating that quant’s life is getting harder these days. Back in the day, a quant in finance could devise a strategy, sit back and let the money roll in while lounging about in a silk robe with a fat cigar. Such are the halcyon dreams of the contemporary quantitative…
Read More Is Quant’s Life Hard or Easy?On July 27, 2017 the Financial Conduct Authority, the U.K.’s top regulator, tasked with overseeing Libor, announced the benchmark will be phased out by 2021. Alternative risk-free rates are being set up for the different currencies. For the US Dollar, the US Fed’s Alternative Reference Rates Committee (ARRC) has recommended using the Secured Overnight Financing…
Read More FASB Proposes Scope Clarification for Reference Rate ReliefLast month, institutionalinvestor.com reported that AI-powered hedge funds outperformed their peers, Hedge funds with artificial intelligence capabilities showed a huge competitive edge over investors that didn’t use AI, new research indicates. AI-led hedge funds produced cumulative returns of 34 percent in the three years through May, a report Tuesday from consulting and research firm Cerulli…
Read More Are AI-Powered Hedge Funds Outperforming?Executive stock options usually have complex payoffs. To price them, we often use the binomial tree method or Monte Carlo simulations. … a lattice model can be designed to accommodate dynamic assumptions of expected volatility and dividends over the option’s contractual term, and estimates of expected option exercise patterns during the option’s contractual term, including…
Read More Valuation of Executive Stock Options Using a Closed-Form FormulaWith a sudden increase in volatility during the pandemic, many volatility funds lost money. Many funds were struck because they adopted a strategy known as shorting volatility — betting that it will fall or remain low. Such funds sell derivative protection such as put options, which give the buyer the right to sell at a…
Read More Short Volatility Funds Lost Money During The PandemicThe trend in the increased holding of risky assets continues. Because of Covid-19, the big banks now hold more illiquid, opaque assets than before. Lenders including Barclays Plc, Citigroup Inc., BNP Paribas SA and Societe Generale SA reported a surge of more than 20% in their most opaque assets during the chaotic first half of…
Read More Banks Hold Many Illiquid AssetsConvertible bond issuance has increased during the Covid 19 pandemic. From a funding perspective, convertible bonds have many attractive features for corporates, which have become more important during the pandemic. …In volatile markets, the value of the embedded option in a convertible bond increases. The asset class also becomes more attractive to investors owing to…
Read More Convertible Bond Issuance Has IncreasedHow do you determine the volatility of an unlisted entity, and more generally, how do you forecast volatility? These are non-trivial questions. There is an interesting discussion on Stackexchange: Here is a question I had for a long time but I never asked. Let’s take an easy example, AirBnb will likely have an IPO soon,…
Read More How to Forecast Implied VolatilityWhen constructing a portfolio, adding a low correlation, low Sharpe ratio strategy can have the same impact as adding a high Sharp ratio strategy. The low correlation strategy is a great diversifier. The core argument presented in this paper –that SR is a misleading index of whom a fund should hire or fire– seems at…
Read More Impact of a Low Correlation Trading Strategy