Calibration in Finance: All You Need to Know
The Whispering Void What is Calibration? Calibration is knows as selecting model parameters to ensure that the theoretical values for exchange-traded contracts that your model generates match the market prices at any given…
Value of a Contract in Finance: All You Need to Know
What is Value of a Contract? Value refers to the notional cost of creating a new contract from simpler items, such as reproducing an option through dynamic buying and selling.…
Volatility Smile in Finance: All You Need to Know
What is Volatility Smile? The expression “volatility smile” refers to the variation in implied volatilities of options based on their strikes. A smile indicates that out-of-the-money puts and calls have…
Why Do Quants like Closed-Form Solutions? All You Need to Know
Why Do Quants like Closed-Form Solutions? Because quants are quick to compute and simple to grasp. A Short Example The Black-Scholes formulas, despite their shortcomings, are frequently used to unintended…
Grisanov Theorem in Finance: All You Need to Know
What is Grisanov Theorem? Girsanov theorem explains how to shift measurement from the real world to the risk-neutral universe. We can transition from one Brownian motion to another by using…
Risk Neutral Valuation in Finance: All You Need to Know
What is Risk Neutral Valuation? Risk neutral valuation involves valuing options based on their expected payoffs, discounted from expiration to present, with the assumption of average growth at the risk-free…
Arbitrage in Quantitative Finance: All You Need To Know
What is Arbitrage? Arbitrage is making a sure profit in excess of the risk-free rate of return. Quantitative finance terminology defines an arbitrage opportunity as a portfolio with zero value…