Volatility in Finance: All You Need to Know
The Whispering Void What is Volatility? Volatility refers to how much an investment’s price fluctuates over time. It’s similar to a mood swing meter: high volatility denotes wild ups and downs, whilst low…
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…
Greek Terminology in Finance: All You Need to Know
What is Greek Terminology in Finance? The Greek Terminology or simply the ‘greeks’ refer to the price sensitivity of derivatives to various underlyings, factors, and parameters. Differentiating option values with…
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…
Brownian Motion in Finance: All You Need to Know
What is Brownian Motion? Brownian Motion is a stochastic process with stationary independent, normally distributed increments and continuous sample pathways. This is the most commonly used stochastic building component for…
Most Useful Performance Measures in Finance: All You Need to Know
What are Performance Measures? Performance measures quantify the outcome of a trading strategy. In most cases, they are risk adjusted. The Sharpe ratio is the most popular. A Short Example…
Marking To Market and its impact on Risk in Trading: All You Need to Know
What is Marking to Market? Marking to market involves valuing an instrument based on its current market price. If you buy an option because you believe it is cheap, the…
Hedging in Quantitative Finance: All You Need to Know
What is Hedging? In its broadest definition, ‘hedging’ involves reducing risk by leveraging correlations or lack thereof between hazardous investments. Hedging aims to optimise risk/return ratios. The standard Modern Portfolio…
Kelly Criterion in Finance: All You Need to Know
What is Kelly Criterion? The Kelly criterion optimises asset growth by allocating a fixed fraction of wealth across multiple investments. The concept is often employed in the gambling industry. A…