Contributing authors: Francesca Bell & Kyle Singh Cryptocurrencies are never out of the news. That news lurches from woeful pessimism to exuberant optimism giving rise to substantial volatility. Elon Musk punts cryptos passionately, then retracts, then endorses them again. China cracks down heavily on crypto traders then pushes its own digital yuan. The Eurozone plans …Read more

As the future of swap clearing in South Africa remains uncertain, abroad the landscape has already shifted. CFTC regulations currently favour the trading of futures over swaps, In November the CME launched a physically settled interest rate swap future, based on the    patented contract developed by Goldman Sachs in 2007. Under current CFTC regulations, …Read more

It goes without saying that there is a significant gap between theoretical quantitative modelling and it’s practical implementation. Black-Scholes does not allow for a volatility smile, no one actually expects local volatilies to be realised and the square route in the Heston volatility process is chosen more for practical implementation considerations, than out of consideration …Read more

The Basel Committee’s final ruling on the treatment of valuation adjustments to liabilities are out, and they reaffirm the derecognition from Tier 1 capital of changes in DVA. “the Committee believes that valuation adjustments to derivative liabilities raise a wide range of prudential concerns, and therefore that conservatism should drive the policy framework in this …Read more

It’s now old news that the Basel Committee are considering scrapping VaR in favour of expected shortfall. Expected shortfall is the expected or average loss given that the loss exceeds the VaR figure. It’s an indication of how big a loss might be, conditioned on the loss being large. The recommendation then for expected shortfall over VaR is …Read more

Revisiting our post on calibration, there’s a fairly stupid example, that at least illustrates the opportunity cost of letting other people analyse your data for you (and callibrating to their prices rather than making your own). Suppose there is a share trading with a return of 10% and a volatility of 0. A common approach …Read more