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  1. A salary question

    I know VPs who have made 7 figures and I know Directors that make a lot less than the 7 figure mark. Some skill, some luck. Definitely survivorship bias in the sample of people who are making that kind of money. Anyhow, the biggest issue here is the idea that somehow this job makes you a...
  2. forex spreads: why do they peak at 22:00 GMT?

    22:00 GMT = 5pm NY That's when one day officially ends and becomes the next (for most currency pairs), keeping in mind FX is a 24 hour market. Spot FX is generally a currency transaction settling in 2 business days. When the date rolls over to the next, so does the value date of spot, meaning...
  3. offer compare: Nomura S&T option desk VS blackrock PAG, active investment analytics (NY)

    Nomura. Also relevant to know that because it's not regulated as a bank, they are able to link compensation explicitly to pnl from risk-taking for bookrunners, which other banks cannot do under Volcker.
  4. Short Put, Positive Vega

    If you're not doing it analytically, maybe it's the numerical stability? Try increasing the bump size.
  5. Job offer from IB, incoming..

    There's not a ton you can do here unless you have a competing offer in hand. I would reach out and ask if there's an update the week after next. The only way to actually speed them up is if you are able to secure at least a verbal offer from somewhere else that isn't a markedly worse...
  6. Strat Job v/s Columbia MFE

    I wouldn't take for granted that job after MFE >= GS strats job obtained before MFE. I think that's a debatable statement at best, and actually probabilistically untrue. I also think the correct comparison would be what job you can get after MFE vs what job you can get after a year (or two) in...
  7. Job offer from IB, incoming..

    I would hold out a little while longer. On the Monday of the third week maybe reach out and ask if there is any update on your candidacy.
  8. Columbia MFE (2017) Is Columbia MFE worth 100k?

    If you want more sample statistics, have you tried emailing the program and asking for them? That said, I wouldn't call it shameful to provide their annual placement ratio together with averages and ranges for compensation. That seems like a decent amount of information. So what if they don't...
  9. Job offer from IB, incoming..

    It'll probably take them a week or two to get you a verbal offer, depending on how standard your background and the role are. Once you agree on terms it could be another few weeks until you get the paper contract.
  10. Columbia MFE v/s Exotic Options Trading Role

    I can't comment on the political environment stuff and how policy might change for foreign students/employees, but that aside I would definitely recommend moving into the trading role first before trying to get into the US via a MFE or (preferably) by moving to a desk at a more global bank.
  11. Columbia MFE Dear Columbia MFE alumni/students, please get out of your caves and tell us about you experience!

    I wouldn't be concerned with the lowest base salary a graduate got. Average base salary of 93k seems fine. Also, these are base salaries, not all-in figures and there will always be a range around the average. I doubt Columbia is trying to pull a fast one on you by not reporting the median as...
  12. Investment banking intern vs MFE?

    It's probably marginally beneficial because it speaks to your ability to get a job on finishing the program, and these programs like to have good placement statistics. But it doesn't matter anyway because if even if it did absolutely nothing, you wouldn't decide to not do the internship based on...
  13. Strat Job v/s Columbia MFE

    Neither one is necessarily a ticket to the buy side, but most MS students would love to land a GS strats job after they graduate so it seems like a weird thing to give up in order to do the MS program. Getting to the buy side is more about what you do once you're in the job that will enable you...
  14. Strat Job v/s Columbia MFE

    GS without question over any program
  15. Interview Question: Goldman Sachs: Imperfect Hedge

    Orange juice futures are quoted in pounds in real life so it's hard to imagine they made up a hypothetical world in which they are quoted in kilos. I don't think you can do what you've done there, gver. You need to write down the pnl function first and then take the variance of it as John has...
  16. Interview Question: Goldman Sachs: Imperfect Hedge

    The price per pound of each of those commodities is what varies with the standard deviations given and with that correlation. You have ignored the 150k pounds of grapefruit juice and the 15k lot size. Write down the exact dollar pnl formula.
  17. Interview Question: Goldman Sachs: Imperfect Hedge

    Without checking your math on the portfolio variance minimization, you seem to have ignored the question of number of contracts. It looks like what you've done is figure out how many contracts of orange juice you should sell per one contract of grapefruit juice, i.e. the hedge ratio. I'm...
  18. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Like I said, you won't be getting a volatility out of the model, you'll have to use a subjective volatility that you estimate using some combination of current implied volatility, current realized volatility, and some additional volatility due to the free float to put into the model to output a...
  19. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    No, I'm not a professor. There is a lot of data available on a Bloomberg terminal. If you don't have one, I'm not sure.
  20. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    I think you're misunderstanding me. I was just recommending that you look at what happened to EURRUB and USDRUB currency volatility after Russia lifted a similarly managed currency basket. It's the closest comparable you've got, and it's recent and has a lot of available data around it...
  21. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Well, the most important inputs will be incorporated within a Gaussian framework. You need to create a sensible forward curve to be the expected drift of the pair. And then you need to determine what volatility the process should follow. Those are the two most important things. From there, if...
  22. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Sure, this is a very common approach for a central bank. Singapore and China both do this. Options on those currencies trade liquidly via the USD without much regard to the widened boundaries, as pressure tends to build on trade weighted terms and the boundaries are floating from the floating...
  23. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    You can't, really, as you'd have to know what came out when which is nearly impossible to track now. The good news is that a lot of the political stuff had already been in the works - the annexation of Crimea happened in Q1 2014, well before 10-Nov. Headlines were still moving back and forth at...
  24. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Russia abolished its fairly similar managed basket (as described in my previous post) on 10-Nov-2014. Why not have a look at the before-and-after of EURRUB and USDRUB option implied volatility and FX spot and forward realized volatility? All that data is readily accessible on a Bloomberg...
  25. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Agreed. I hadn't realized MAD wasn't really pegged but was instead a managed basket of EUR and USD, which is obviously why it's more volatile than a proper floor like EURCZK. RUB is therefore a better test case.
  26. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    What I meant to say is that EURCZK will have different dynamics than EURMAD, say, once it is floating, because CZK has a different economy, trading parters, and central banking from MAD - so simply looking at EURCZK without making some adjustment for it being a different currency cross would be...
  27. Forecasting behaviour of exchange rate after the annouce of switching from peg to float

    Not really. Whatever model you choose would rely heavily on your own assumptions with respect to jump size and volatility after jump. Normally the OTC FX forwards market will point to where the market expects the currency to jump to in the case of a known float in the future. FX options with...
  28. Will I ever become PM?

    That's not a game I think we should play. I don't have a number between 1 and 10 to give you, but we both know it's less than ideal to have a small payout on a small capital allocation. As you say, the path at a HF is less well defined. From that, you can see it's within your power to change it...
  29. Will I ever become PM?

    Okay, I understand. I'll get into it later, but you should realize that isn't really the common HF nomenclature, so to speak. There are a number of issues here. First, the size of this portfolio just isn't large enough for you to establish a credible track record to get hired as a PM with a...
  30. Will I ever become PM?

    It's really difficult for me to say given I don't know where you work and what personalities you are dealing with. When you mention the profit sharing, does that mean 15% of the PnL is attributed to your efforts and then you are paid some percentage of that fraction of the PnL at the end of the...
  31. Will I ever become PM?

    Getting a masters won't catapult you into the PM seat, so I wouldn't recommend taking the time away from work and/or spending a bunch of money to do that. The PM and CIO don't have a reason to want to 'upgrade' you from your seat. They get paid as a linear function of firm revenue, while you are...
  32. Sharpe Ratio - Issues calculating

    You are supposed to use the daily mark-to-market of whatever position you are running, regardless of whether or not it is stopped out. This isn't a hold to maturity thing for each individual investment. This exercise won't make sense otherwise. Also you simply can't calculate a standard...
  33. Sharpe Ratio - Issues calculating

    You haven't provided enough information to calculate it. I wouldn't worry about the risk free rate. Use daily returns and just take your annualized return and divide it by the annualized standard deviation of those daily returns.
  34. Withdraw Acceptance from BB for buy side?

    A few thoughts... Is the offer from the hedge fund in writing? If not, don't do anything yet. Is the offer from the hedge fund materially better in experience you will gain? If this is your first job, pay probably isn't meaningfully different. Maybe short term meaningful for a fresh graduate...
  35. Is there a place for me in quant finance?

    The reason I don't immediately reach that conclusion is because the more plausible reason for the lack of investment are bad incentive schemes like corporate bonus formulas that rely heavily on earnings per share, combined with ultra low interest rates. It's very cheap to borrow cash and buy...
  36. Is there a place for me in quant finance?

    A few points to push back on... The majority of the record low participation rate is explained by aging demographics as the baby boomers reach retirement age, which had been expected ahead of time by macroeconomic models. Some of it is excess slack in the labor market unexplained by the U3...
  37. Is there a place for me in quant finance?

    Not trying to kick a hornets' nest here, but out of interest, what's the story behind the US / global economy being on life support? And how has sovereign policy making been hijacked? It feels like there's a lot of hyperbole in here, but I'm not totally able to connect the dots.
  38. What's the most disappointed part of quant career to you?

    I think what this post gets at is that quant groups at banks are generally viewed as supporting revenue producing groups (sales and trading desks), and are therefore cost centers that those desks pay out of their P&L, rather than being revenue producers themselves. The S&T desks come up with...
  39. Volatility skew in volatile markets

    I don't follow the logic?
  40. Quanto options .. Intuition ..

    Alright so in this example an American investor wants to own an Australian equity and get paid the return that equity experiences in the local market, but in USD. The trader who prices and sells this option will only have the ability to hedge with shares of the local stock (call it AEQ for...
  41. Is it possible for me to become a quant analyst?

    Huh? I'm pretty sure it will legitimately not matter at all if it's a misdemeanor.
  42. Cross Gamma

    I think you just treat it like normal single underlying gamma, except the term is cross gamma = d^2 C / dX1 dX2 ... then pnl on the cross gamma is just 1/2 * change in X1 * change in X2 * cross gamma
  43. How to Calculate Option Time Value?

    Seems like no one else took this question, so I'll do it. Intrinsic value is a trivial thing, it's just the current in-the-moneyness of the option, discounted back to today. If the strike is out of the money with respect to the underlying's forward to the expiration date of the option, the...
  44. Do Quants get bonuses?

    Since we're comparing quants to bankers, I'm assuming we are talking about quants who work at bulge bracket banks, and investment bankers (I'll assume we include salespeople and traders here) who work at bulge bracket banks. At investment banks, quants support people who generate revenue, and...
  45. How much money can a quant ACTUALLY make?

    I don't think there's a correct answer to your question. There's trade-offs for any career decision, and it's never as simple as "what will get me the richest quickest". If you can start up a successful company and either run it or sell it, then sure, generally that has always been the most...
  46. What is a trading analyst position like?

    There isn't a traditional timeline or route like there is for private equity. As I understand it, those would normally spend 2-4 years in an IBD on the sell-side (essentially completing their analyst or associate program plus or minus a year), and then try to make a move to a private equity or...
  47. What is a trading analyst position like?

    It sounds like the jobs you are looking at in banks are for quants supporting trading desks, while the jobs on the buy side are quantitative trading / market-facing jobs (whether automated market making or stat arb or whatever). Normally I would advise people looking at trading jobs straight out...
  48. Purest way to trade option skew?

    Some are more liquid than others (e.g. gamma swaps are just as replicable with vanillas as variance swaps), some are more liquid depending on what asset class you are in, but of course it's all dependent on getting a decent price. That's why in my original post I said realistically you're...
  49. Purest way to trade option skew?

    I think you guys are talking about different things. I understand euroazn's aversion to trading variance swaps in order to trade vol. Yes there is a direct relationship between the two, but in reality there's a ton of risk in selling variance that you don't have when you sell volatility, and in...
  50. Purest way to trade option skew?

    How about doing a forward starting skew swap, one that only takes observations starting at some point in the future? If you buy, say, a 6 month skew swap which starts fixing in 3 months' time, you get a 6 month implied skew level entry point that you can close out / monetize at any point until...
  51. (First Post) Is quant trading really the future?

    I think you need to differentiate what you mean by "trading". If what you mean is the execution process in large, relatively liquid markets, then yes. If you are talking about a broader elimination of humans in the decision making process when it comes to allocation of capital, then no...
  52. Majoring in Operations Research for Actuarial?

    I think Columbia is great. I went there. But two years is a long time to be spending on a second bachelors in which you're probably not genuinely learning a whole lot more than you learned in your first four years. You'll be missing out on 2 years of income and getting closer to a less junior...
  53. Majoring in Operations Research for Actuarial?

    Yep if they've given you money for the second bachelors that's fair enough. It sounds like they haven't given it to you yet though? Why not skip the second bachelors altogether and just go to work?
  54. Majoring in Operations Research for Actuarial?

    Just out of interest... Columbia offers masters programs in Actuarial Science, Statistics, and OR, each of which can be completed in one year. I don't know what your arrangement is with Columbia, but why not spend a year less in school and come out with a masters degree instead of a second...
  55. How do bank trading desks actually work?

    I'm not sure about 1 day forwards in equities, but I assume you can try the same avenues if you need bespoke 1 day maturity: first Bloomberg, then your prime broker, then a bank of your choosing if the first two paths fail. I would just use the first futures traded on the exchange, though, and...
  56. How do bank trading desks actually work?

    Right, okay. I'll break this all down. Mechanics. So EURUSD spot settles t+2 business days. You are looking for a t+3 settlement, I'm guessing, meaning 1 day beyond spot settlement. That's also called spot-next in the market, and if you are looking at quotes for EURUSD forward points in the...
  57. How do bank trading desks actually work?

    Are we talking about FX forward contracts? If so, what sorts of currencies and how long-dated?
  58. Want my own team. Am I think too much or am I on track?

    I agree with pingu here, except something to consider is the ability of your current shop to have you be a PM. They've got 250m AUM; that's not enough of a pie to be splitting up between various PMs. Even if they do let you into the investment side, it will probably only be worth it in that it...
  59. Should I start my career in a small hedge fund?

    I would be a lot more excited by this opportunity if your boss/mentor were the founder and/or lead investor. It sounds as if a lot will be out of his power, and that his annual income isn't a boat load to aspire to.
  60. Should I start my career in a small hedge fund?

    Is the money all his or has he raised this money via outside investors?
  61. Should I start my career in a small hedge fund?

    The main benefit of working in a small hedge fund is the opportunity to own a part of it, i.e. get paid in shares. It doesn't sound like your deal would include any of that. The salary is quite low, especially considering the exchange rate to dollars is 1.40. I think you need to get a better...
  62. 90 day notice period at Barclays?

    On the longer side, but definitely normal. If you want to leave, you need to tell your next employer you'd likely not be able to work for 3 months. It's just a free option for the bank to protect its IP for up to 3 months. When you resign, they can easily choose to not enforce the notice period...
  63. Dislocations

    Not really sure what the analogy would be between realized/implied vol and stochastic/local vol? Short answer is I think no.
  64. How much money can a quant ACTUALLY make?

    I sort of understand why he's asking, even if it is asked in kind of a douchey manner. He wants to know the potential money he can make from different career paths. To further expound on this, no matter what you do, you won't just drift over time into making over a million a year anywhere, in...
  65. How much money can a quant ACTUALLY make?

    Making 8 figures is not something you do by simply being good, or great, at your job and climbing ranks. To make 8 figures, you either have to own the place, or be personally responsible for 9 figures of profit for the firm as a revenue generating producer on the investing side, whether its via...
  66. Vol vs var swaps

    I don't have any one paper on this stuff, but the profiles of varswaps and volswaps are well known; there's plenty that will come up if you just google them. Varswaps are priced via a vanilla replication using a continuous strip of options along the volatility smile for a given expiration date...
  67. Vol vs var swaps

    A varswap vs volswap spread put in place in equal vega amounts at onset of the trade (as a package also known as a convexity swap), does allow you to trade the 'curvature' or convexity of the smile. Volswaps are linear in vol by definition, meaning they don't have any dvega/dvol, while varswaps...
  68. Duration of a receiver swaption

    The 2y swap matters because you care about the forward starting rate: the 7y rate tells you about how much interest you get for the cumulative period 0 day - 7y. You only care about how much is apportioned to the period 2y-7y. So depending on what the 2y rate is, more or less cumulative interest...
  69. Duration of a receiver swaption

    Yeah to be clear here you're just rationalizing the sign of the delta hedge, so that should be correct. I'm not a swaptions expert but it seems right to me.
  70. Chartered Market Technician

    I am not a technician, and I do not subscribe to any technician's work in particular - it's just not my trading style and frankly I share the same sorts of doubts about the whole field as the users above - but the fact is that enough people do stand by at least some of it and use it in their...
  71. Dual digital and Worst of Basket Options

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1882343 This framework applies to any multi-currency european style payoff, so worst-ofs and dual digitals qualify (they are the most common trade types in that category). This is the best method of pricing as it reprices the cross smile...
  72. SABR and Heston Model

    Although a lot of the literature suggests running regressions to find beta, these regressions are often unstable and can lead to betas outside of [0,1]. Practitioners normally fix beta to 1/2 or 1 and calibrate the other parameters. The other option is to make it a calibrated parameter and use...
  73. Why does the FX market quote the vol against delta?

    I don't think there's a great reason here, honestly. The same models are used for pricing and risk management. I actually find it easier to think about relative value smile trading in delta space rather than strike space, so I don't mind the FX quoting convention.
  74. Butterfly Volatility in Forex Markets

    The butterfly measures how far the strangles of a given delta (normally 25 delta) trade above ATM straddles, in vol terms. The actual structure it represents is buying a strangle and selling a straddle in vega neutral amounts (i.e. more notional of the strangle such that the whole package is...
  75. A realistic look at the MFE

    This just isn't true. Graduates of both PhD and MFE programs get jobs as junior quants (among other things) and then can go on to be more senior with time. Anyone going from school into a professional environment will always start as someone's junior regardless of program. MFEs aren't destined...
  76. Columbia MSOR S&T?

    Oh I see. I'm not sure, to be honest. Thankfully when I applied there was no interview requirement! Sorry.
  77. Columbia MSOR S&T?

    I got an MSOR from Columbia and went straight into a trading role at a bulge bracket bank via on-campus recruiting. Not everyone does it, and getting these jobs is a very competitive process regardless what program you attend, but the opportunity is definitely there. As for what courses to take...
  78. Impact of Oil on Russian Ruble

    I think the story here is that Russia in general has a higher sensitivity to the price of crude since sanctions have been imposed. The sanctions are pretty severe and have smashed Russia's growth prospects; Russia's future and bargaining power was maintained by their ability to export oil. The...
  79. Effect of sanctions on currency pair

    (1) Yes, definitely. Just look at what happened to the currencies when the sanctions were announced. (2) It's not a question of whether sanctions impact more or less than macro data. Sanctions impact the macro data directly. For example, anyone in Russia will tell you food prices have gone...
  80. Delta and gamma for "knock-in bull spread"

    This does look a little funky in a few different ways, but I have a guess on the gamma issue. This happens every so often with a numerical bumping method to calculate gamma within a model that hasn't been tweaked to specialize in a certain product. Let's say you're a bit above of the barrier and...
  81. Most quants are practical-know-how virgins!

    I think that's kind of a weird blanket statement to make. It sounds like an equivalent statement might be that quants aren't experienced traders, which would be fair enough. I'm sure most traders aren't experienced quants. Also I'm not sure what crappy models we're referring to here. No model is...
  82. Why do we need convexity adjustment (CMS, ...)?

    I'm familiar enough with FRAs vs futures. But that's just because when you trade futures you settle up daily pnl on the exchange, while when you trade a FRA you only settle at expiration. Whether it's worth it or not to be received of a FRA and short the future, or vice versa, is a view on...
  83. Why do many traders use Black-Scholes formula to price vanillas?

    I agree there is a certain amount of subjectivity in pricing path dependent exotics. But I think there is a bit less subjectivity than we're giving sell side traders credit for. As diegosanaz has pointed out, nobody believes that the B-S formula actually describes reality. This is why a smile...
  84. Should a sophisticated model like local vol be for pricing futures and vanillas?

    I'm going to consider this as a genuine question rather than an excuse to say something inflammatory. The implied volatility of an underlying is the market's forecast of the standard deviation of the returns of the decreasing maturity forward of the underlying to the expiration date as measured...
  85. confused about vega

    What's your angle here? What point are you trying to get across with these posts?
  86. Why do we need convexity adjustment (CMS, ...)?

    In this imaginary world in which you are the trader and I am the academic quant and not the other way around, how are you going about arbing the market?
  87. Should a sophisticated model like local vol be for pricing futures and vanillas?

    Agreed with CasanovaJ. For vanillas local vol is fine by definition. Just don't use it for path dependent exotics.
  88. confused about vega

    If you don't want to adhere to market convention, then I suppose you can create whatever (within reason) model you want and have risks in terms of sensitivities to inputs of that model. I would urge you to reconsider writing off market convention, however, as the implied volatility smile created...
  89. Why do we need convexity adjustment (CMS, ...)?

    I don't know what you are talking about
  90. Why do we need convexity adjustment (CMS, ...)?

    Just came across this thread due to the paper marketing and realized the convexity adjustment question hadn't been answered in layman's terms. It's a weird almost circular concept that exists only in rates markets. If you were to price a receiver swaption and a payer swaption struck at the...
  91. How do I break into trading at a bank, hedge fund, or asset management firm?

    CMU, Princeton, Columbia MSFE, Berkeley, and NYU are all great schools - and I agree an internship is a great idea. As for which schools have the highest hit ratios for bulge bracket investment bank or hedge fund trading jobs (not prop shops) specifically, hopefully someone else can chime in; I...
  92. How do I break into trading at a bank, hedge fund, or asset management firm?

    I sort of disagree with that entirely. Although mastertrader has experience prop trading a stock portfolio, it's hard to imagine all the skills he acquired in that job being directly transferable to a big sell side trading desk. I think it would be a bit tricky to parlay this background into an...
  93. confused about vega

    So like I said in the previous post, you look at the vega in conjunction with your smile risk. Your smile risk is important too, but vega is a first order problem and smile risk is second. This is why traders are concerned with vega before considering smile risk. There are ways to try to...
  94. confused about vega

    I'm an options trader. Here's what we do. We look at the sum of vega (technically smile vega, not B-S vega, but assume B-S vega for these purposes) of all our options. We generally bucket by tenor, like 1M, 3M, 6M, 1Y, etc, as each point in the term structure doesn't always move in parallel. But...
  95. Exchange rate forecast help? Or should I enter a zero cost collar?

    I must confess I don't understand the mechanics of your FX hedging needs - it doesn't read very clearly. Regardless, I would not recommend trying to predict where USDZAR will be in 2 months unless it is your job to do so.
  96. Market Risk and Career Possibilties

    1) Once you're there, how you do your job should be more important than what degrees you have. 2) Not easy. Your best bet would be to form a personal relationship with traders on one of the desks you cover. But this is not a regular path to trading and it will be challenging. 3) More senior in...
  97. Hedge Needs - Which Model is Best to use?

    If you have no idea where the smile is and don't plan on hedging your vol exposure ever, I suppose just use Black Scholes, but this smells like a bad idea. What are you trying to accomplish?
  98. Hedge Needs - Which Model is Best to use?

    This is a bit of a difficult question because your choice of model depends a lot on how you believe surface dynamics evolve over the course of the hedging of the option, which in turn implies you are hedging a lot of things other than delta. If you are restricting yourself to only hedging the...
  99. How to get hired in strats and structuring?

    Hi guys. To provide a little clarity here, the name "strat" is pretty specific to GS and MS. I don't know much about MS, but at GS strats are either trading strats or sales strats. Trading strats are a lot like modeling quants who sit with the trading desk. They work on pricing models, advise on...
  100. Little question on best-of of 2 calls

    Hello friends. I think the clearest way to understand the correlation exposure of a best-of is to look at it through the lens of a worst-of. The worst-0f is replicated by vanilla call 1 + vanilla call 2 - best-of 1 and 2 calls. Go through a couple at-expiry scenarios to convince yourself that...
  101. Want to be trader

    I'm not sure there's a wrong reason to want to be a trader. You should have a genuine interest in markets, and ideally it's a particular interest in the market and product set that the job you're applying for deals with. The challenge is, of course, it's difficult to have especially specific...
  102. Volcker Rule

    In addition to certain products being exempt, there seems to still be quite a lot of wiggle room in how banks can trade in less-than-liquid derivatives markets. It would be very convenient if every trade a client wanted to do could be offset by a trade a different client wanted to do, but that's...
  103. Pricing a barrier option from a binary option

    I'm going to assume "knock-out down-put" means "one touch", i.e. something which pays $1 if the underlying touches $80 at any point between today and maturity. Using the reflection principle, this is just twice the probability of the underlying finishing below this level. So the answer is...
  104. Analyst vs Associate Positions

    Ah sorry guys, for some reason I had it in my head we were discussing S&T roles which doesn't seem to be what the original thread was about. I'll defer to you guys for risk management / quant roles. Also agreed number of heads is the primary objective during riff rounds - but doesn't mean...
  105. Analyst vs Associate Positions

    Hmm I really disagree here. On the comp side for salespeople, traders, and structurers at bulge bracket banks, first year analyst base salary is 70k, bonus on average between 30k-50k. First year associate hired from school base is 100k, bonus between 40k-60k. So on average I'd expect to earn...
  106. Analyst vs Associate Positions

    Yeah I mean I agree with C.Y. that you should of course try to get as much money as possible, but you'll only be allowed to apply to either analyst or associate roles at each bank. HR will most likely guide you to the appropriate track, but if you do end up in the associate applicant pool, your...
  107. Analyst vs Associate Positions

    It sounds like you'd qualify for an analyst role. Base salary for a first year analyst at bulge brackets is 70k for S&T, which goes up 10k for the next 2 years as you go from first year to second year to third. Associates that get hired out of school into S&T roles at bulge brackets are either...
  108. Sales & Trading Summer Analyst Internship Question

    Yeah the issue really is that these analyst programs are really designed for people fresh out of undergrad. People get in from one year masters degrees occasionally without work experience as well, but its pretty unusual for anyone over say 24 to enter one of these programs at that age. It has...
  109. Sales & Trading Summer Analyst Internship Question

    I've worked as a trader in a couple bulge bracket investment banks, and while I don't agree at all that you need to have some kind of trading experience to get hired into an entry level trading role, I must admit that getting a bank to hire you for that role at 40 is a tough one unfortunately -...
  110. When to use Local Volatility Models? When to use Stochastic Volatility Models?

    You have to use a stochastic vol model (well, really a blended stochastic/local vol model) if the option is path dependent. If the option is not path dependent, purely European style, then you can use a local vol model. I should point out though that above you stated you needed a stochastic vol...
  111. Question on Barrier Option and Skew

    Yes basically right, and those identities are generally correct. Bear in mind it's really about the vega profile across spot. So for barrier options that knock in or out when the option is in the money, when spot gets sufficiently close to the barrier, it's more about delta and less about vol...
  112. Question on Barrier Option and Skew

    Long You want the option to knock in, and want vol to be high when it knocks in as you will be long a vanilla call option a that point. Put together, your vega profile across spot will increase as spot moves down toward the barrier level. This means you are synthetically long low strikes, making...
  113. Quant Jobs for Math/Stats/Econ with minimal CS Background

    You won't be able to work as a quant, but there are certainly trading jobs at banks and hedge funds you'd be able to apply to.
  114. Help with Jane Street Interview Question

    Think the responders misunderstood the question. Using Lagrange multipliers... 2x+y=L*2x x=L*2y x^2+y^2=1 2xy+y^2=L*2xy x^2=L*2xy x^2=2xy+y^2 2x^2=x^2+2xy+y^2 2x^2=(x+y)^2 xsqrt(2)=x+y x(sqrt(2)-1)=y x^2+x^2(sqrt(2)-1)^2=1 x^2+x^2(2-2sqrt(2)+1)=1 x^2(4-2sqrt(2))=1 x=1/sqrt[4-2sqrt(2)] ~...
  115. Vanna-Volga

    Well, no, and the reason is basically because we're missing why we use a vanna-volga model to begin with. The vanna-volga model (badly) prices exotics which need to incorporate the full volatility smile rather than one ATM volatility. The smile is roughly incorporated by the premium of the RR...
  116. Intra-day volatility arbitrage strategy (VolArb)

    Sure you can do it, and there's also a lot of research done by the sell side on options replication via dynamic spot trading. Basically you trade an imaginary short gamma position which you don't actually have to replicate a long option position. Sort of a mind-fk but think about it and it sort...
  117. Plugging in a different probability distribution into GBM?

    Don't think this will be groundbreaking work. The volatility smile present in all options markets implies distributions which are not lognormal.
  118. How does raising interest rates help curb inflation?

    Just going to follow up briefly on this because we're approaching the next stage of the game. The Fed has signaled a tapering of their QE program which will probably begin this September (subject to wiggle room based on macroeconomic data), and so back end rates have screamed higher in...
  119. Intra-day volatility arbitrage strategy (VolArb)

    This is something that sell-siders do regularly. It's just called delta hedging. If you buy options, you'll be long gamma. Dynamically delta hedging the position to delta neutral as spot moves net with the PNL from the option itself on any given day has expected value equal to each day's theta...
  120. How does raising interest rates help curb inflation?

    Just going to throw this one out there as it's something we've been discussing a lot on the trading floors, and it's not quite as black and white as the theoretical arguments posted above. And apologies in advance to anyone who hates Krugman. When the Fed buys up any asset under the sun, it...
  121. GS developer vs Barclays Capital quant

    I think this is an easy question, honestly. You've said above you'd prefer to be a quant than a developer. So go be a quant. Barclays is a proper global investment bank so nothing to worry about there, and frankly in some asset classes has better modeling than GS anyway. GS overall I agree is a...
  122. Slope of Non-Linear Curve

    yeah basically except i would use an averaging (or weighted averaging) of the rate of change from the point behind the point in question to the point, and that from the point in question to the point after it
  123. Slope of Non-Linear Curve

    Don't think there's anything set up by Excel for you to use. I think you'll just have to come up with a numerical method to approximate the slope at any given point.
  124. Cross-currency exchange arbitrage opportunities

    I would agree with that. That just means he's punting on trying to make money off of a little short term mean reversion. That strategy would be far from arbitrage, as you point out, and would bear much more similarity to a strategy consisting of flipping a coin.
  125. Cross-currency exchange arbitrage opportunities

    I'm not really sure about what you're asking me to do. I think the question is more why is it out of balance in your mind and how do you expect to arb the market?
  126. Cross-currency exchange arbitrage opportunities

    I trade foreign exchange professionally, have done so for a number of years, and I assure you that this arbitrage opportunity you speak of in AUDNZD does not exist. Sure, maybe you'll buy some here and then maybe spot will reach your take profit 50 pips higher. But then again, what if it goes...
  127. COMPARE UCLA MFE vs Columbia MSOR

    I'm sorry, were you expecting names and phone numbers?
  128. COMPARE UCLA MFE vs Columbia MSOR

    Yep that all makes sense. What I'm saying is you can choose to not respect the students who attend this program as much as those in others, and that's fine. You can also choose to believe that the MSOR program does not provide as in depth an education in financial engineering as the top MFE...
  129. Calculating Probability of occurrence in options

    The delta of an option with a given strike is (approximately) the probability of the underlying finishing beyond that strike level at expiration of the option. What that delta is, intuitively, depends on the shape and level of the implied volatility smile to that expiration date which itself...
  130. COMPARE UCLA MFE vs Columbia MSOR

    While it is very tempting to believe that, as it does seem to be a logical conclusion, this is just not the case - which has been brought up time and time again in this forum. Basically everyone figures, since MSFE and MAFN are quantitative finance programs and MSOR is not, the financial jobs...
  131. Calculating credit risk for corporate bonds

    To just build a little bit off what JulianT has said, trading desks look at both DV01 and CS01. DV01 being the risk of the risk-free/benchmark rate moving 1bp, and CS01 being the risk of the credit spread over the benchmark rate moving by 1bp. For a plain old bond these risks should be the same...
  132. COMPARE UCLA MFE vs Columbia MSOR

    I don't know guys.. Columbia MSOR has taken a severe beating on this forum for a while, and when I graduated from that program years ago I was made to believe from people here on QuantNet that I was one of maybe 10% of graduates who ended up getting placed - and the reason I was placed was...
  133. Can anyone help me with this simple model.

    borrow $5000 today and buy $5000/50 = 100 shares of stock sell those 100 shares of stock 3m forward for 100*51 = $5100 you will owe $5000*(1+8%)^(1/4) = $97.13 in interest for the $5000 you borrowed so you have made $5100-$5000 = $100 from the spot vs forward underlying price neutral transaction...
  134. Cyprus Issue

    I think there's another pretty dangerous consequence of this: a Euro in Cyprus is not worth the same as a Euro in Germany, which in turn is not worth the same as a Euro in Italy. I argue this is because of either a direct haircut on deposits (i.e. Euros held in Cyprus) or because of risk premium...
  135. How to settle down a variance swap on a single name when default

    Yeah I mean I get how forward volatility / varswap MTM is calculated and how variance swap contracts work under normal circumstances, but if a company goes bankrupt and their stock gets delisted and/or options stop trading, then finding the mid market volatility of an asset which has stopped...
  136. How to settle down a variance swap on a single name when default

    For those of us that do not have a variance swap ISDA on hand, how exactly does that payment work? How is the Equity Amount defined?
  137. How to settle down a variance swap on a single name when default

    i'm curious as well... anyone out there work in equity derivatives?
  138. job w/o programming skills?

    you can be a structurer at a bank.. you'll have to program a little bit but mostly it'll be a job that uses the creative side of a math background
  139. Just got laid off

    dude this is the deal you're making by going to work at a prop shop go work somewhere else if you dont like it
  140. Is Finance (and Fin. Engg.) a shrinking industry?

    There is no doubt whatsoever that the finance/FE industry is shrinking. Jobs and salaries, particularly at banks, are declining and probably still have room to fall further. There will always be a need for quants, just not as many, and not for as much money. There are a lot of people going for...
  141. Difference between Black-Scholes and Black-litterman Models

    Black-Litterman is not an options pricing formula. It is a tool for portfolio optimization, which is something entirely different.
  142. Post Dodd-Frank, why do you want to be a Sell-Side Trader ?

    It's impossible to predict the future. No one can tell you what the landscape will look like three years from now with any kind of certainty. My take on it, though, is a lot less dramatic than it appears most people believe in this forum. I think that things will look pretty similar in a few...
  143. Please clarify some trading terminology

    Their are some market makers who also trade prop, as a secondary mandate, depending on the asset class. This is quite common on the fixed income / FX side of things. There are some traders who only trade prop (yes, even they still exist). There aren't, as far as I've seen, traders whose primary...
  144. Please clarify some trading terminology

    We discussed this on another thread. That's not really true. A lot of asset classes are exempt from these regulations. My desk is one of them. Equities are very institutionalized, fixed income is not really and there you can find people market making as well as prop trading more often.
  145. Post Dodd-Frank, why do you want to be a Sell-Side Trader ?

    Well I don't think anyone wants to be a stock trader at an IB. That sounds like a terribly boring job. But there are equity derivatives desks that handle less transparent and less liquid products that you can deal and hedge with simpler securities to make a decent amount of money. And since this...
  146. Please clarify some trading terminology

    (a) Agency Trader: These are traders who take zero risk. When a buyer, or seller, calls one of these guys up to purchase a security, the agency trader executes the trade in the market and passes the trade onto the customer for a commission. (b) Execution Trader: These are generally one of two...
  147. Post Dodd-Frank, why do you want to be a Sell-Side Trader ?

    My desk (and many others in FICC divisions) is totally unaffected by these regulations thus far. We make markets as well as take proprietary positions. As far as I know, execution salestrading for per trade commissions only exists (and has existed for some time) in equities.
  148. Handling log returns

    Kuroda: I'm a little unclear as to what you're doing, but I will say this. Log returns generally refer to doing the calculation ln(S(i)/S(i-1)), where S(i) is the level of a given asset at time i, to represent the return of the asset between i-1 and i. It's used because of the nice properties of...
  149. Cross-Currency VS FX

    generally when someone says something about "cross currency", they are talking about a cross currency swap which is a rates product denominated in two currencies... so the answer you're looking for is that it would fall under the rates asset class rather than fx
  150. Convexity of a Perpetual Bond

    no love? (modified) duration = -(1/price)*d(price)/d(yield) = -x*d(1/x)/dx = -x*(-1/x^2) = 1/x the duration of a perpetuity due, which starts payment today rather than a perpetuity immediate which starts payment next year would be future valued 1 year from that, i.e. (1/x)*(1+x) = (1+x)/x, but i...
  151. Convexity of a Perpetual Bond

    so general disclaimer: this is not what i do but once upon a time i learned bond/annuity math the PV/price of this perpetuity is 1/x, where 1 is the coupon payment and x is the interest rate convexity = (1/price)*[d^2(price)/d(yield)^2] = 1/[(1/x)]*[d^2(1/x)/dx^2] = x*[d(-1/x^2)/dx] = x*[2/x^3]...
  152. What do improvements in the modelling of stochastic price processes imply?

    Can you give an example of what you are talking about? I think there may be a couple things you're missing. 1) The drift of an asset may be incorporated into a model simply because there are costs of carry associated with holding it or selling it. Just because you don't believe the forward...
  153. Interest Rate Derivatives

    no this isnt really niche to be honest... interest rate derivatives are derivatives on fixed income products, i.e. very much part of the FI part of FICC and is a staple group that every major investment bank has.. for example, swaps fall into this category, which every major corporate uses to...
  154. Interest Rate Derivatives

    in the foreseeable future, a job in interest rate derivative sales leads to just interest rate derivatives sales, maybe selling another asset class, but its pretty pigeonholing as are most sales/trading jobs on the street.. its much easier (though not that easy at all) to go from trading to...
  155. variance swaps like derivatives

    you're really looking at just volatility swaps, variance swaps, and correlation swaps that have that sort of payoff structure. from there you just have more bespoke rules tacked on to them to give the investor the precise exposure he wants.. for example a corridor variance swap only accumulates...
  156. Forex Derivatives Trading?

    There is no value place on your personal accounts if you're looking for a job at a bank trading foreign exchange derivatives. Every so often I come across a resume that states that the person has a personal account and then proceeds to list a couple positions they put on that, wouldn't you know...
  157. Is it ever possible to dynamically hedge an option?

    yes, this is how banks do business
  158. Merton's no early exercise theorem

    just to add, in practice, we do not offer american options at the same rate as european options - we'll charge for the extra optionality you get in the ability to exercise early whether it should be the case in theory or not.
  159. equivalent Black-Scholes volatility

    i'm not really sure what you're talking about to be honest.. the vol for vanilla strike you get on an implied volatility smile contains a good amount of intuitive information about the market's perceived conditional expectations of volatility given certain spot movements.. the vol you'd get when...
  160. Derivatives Pricing Question

    basically agree with Yike Lu also address your point about subjectivity in model choice normally all banks use pretty similar models to value these exotics.. in addition to the customer market, in standard exotics there are active broker markets in which banks can trade with each other.. so each...
  161. equivalent Black-Scholes volatility

    don't think there's any other way really.. but most exotic options should have closed form solutions in a black-scholes framework right.. in any case even if there wasnt i think you're basically stuck with a root finding algorithm.. just putting this out there also: i think the results you get...
  162. COMPARE MSOR (Minor FE) in Cornell vs Columbia MSOR

    The argument about people in different departments at Columbia competing against one another for the same jobs is one that I hear a lot on quantnet and think people really put too much emphasis on. Yes, obviously they are and that sucks, but it's not like Cornell grads aren't also competing with...
  163. COMPARE MSOR (Minor FE) in Cornell vs Columbia MSOR

    As a Columbia MSOR grad, I basically agree with this except for a couple points.. I don't think the program is designed for people interested in a career in operations research. Maybe at some point in the past it was. I honestly think it's now designed to be a catch all program for students who...
  164. Vega of a call option

    the vega of a vanilla option will always be positive no matter what model you choose - why should this be model dependent?
  165. Where are all the NYC entry level / junior positions?

    banks across the board right now are looking to decrease head count, and it's affecting junior positions as well as senior ones as much as we'd all like to believe it would be most effective cutting out senior people first.. on the sales and trading side across asset classes, customer interest...
  166. call option sensitivity

    not sure why you want to find that but just using basic intro calculus gives me this gamma(C)/C-delta(C)^2/C^2
  167. quant finance in 2015

    its a bit hard to predict the future, but i'm fairly confident the world won't look how you've described it.. i think there will still be demand for quant traders as well as traders with quantitative aptitude and training, in general.. cant say much more without more specificity as to what side...
  168. Recruitment agencies asking for resume in word format.

    basically just seconding Andy's response - i had the exact same experience.. this is why they want it in Word, don't be afraid, it's very standard
  169. Risk Management?

    So it seems where we differ is at what sorts of places the people we're describing work. To be clear, I am describing sales, trading, and risk management as they pertain to global investment banks. In that context, sales, trading, and risk are directly comparable. I'm not talking about...
  170. Risk Management?

    Unless you started working in 1982, you had a remarkably unconventional experience. If you started out as a first year analyst at a global investment bank in a sales or trading role in 2008, the worst year in a very long time, your typical base salary was $60k and your bonus was $40k (paid in...
  171. Risk Management?

    These numbers don't include bonuses. The base salaries for analysts and associates are about the same between most divisions of the bank, but the front office positions receive much higher year end bonuses - even in bad years like the last three. Just had a quick look at this glassdoor...
  172. Risk Management?

    Not sure about the higher percentage of MD/ED titles in front office. It always seemed to me that the distribution of titles was quite similar between risk management and front office.
  173. Risk Management?

    I've been a trader at a global investment bank for just a few years. Before that I did a summer analyst stint in market risk management for a different bank. I'm not the most experienced person in finance, but I know my way around the trading floor. I'm only talking about investment banks here...
  174. Risk Management?

    No, this is fact. There are few things that I will claim as indisputable fact and this is one of them. There are many merits to working in risk management, such as the decent hours, lower level of stress, better work/life balance, being the good guy making sure the revenue producers don't take...
  175. Basic question

    1) it seems wrong to use the closing price to represent that day's price.. it seems more correct to use the day prior's closing price as a proxy for that day's open price.. but both are a bit wrong obviously 2) a 1 week option that is 5% out of the money will have some skew on it, so using the...
  176. Risk Management?

    Some general warnings I feel anyone considering a job in market risk should know about working in market risk. When the trading desks are making tons of money, you will not be credited with generating that revenue stream. (Having that money sloshing around will of course make it easier for the...
  177. Risk Management?

    That totally depends on where you are working and what role you are in. All I can really speak to is what the average market risk manager in an investment bank might do on a day to day basis as that's all I've seen myself. You generally cover a handful of trading books' all from the same asset...
  178. Risk Management?

    No, risk managers are not considered quants, though some risk management groups have quants which work within them. But generally when you think of a member of a risk management group, that person is not a quant. There are a few types of risk managers. First, there are market risk managers...
  179. Skewness and interest rate differential of a currency

    sorry no one has responded yet... so i would think, without looking at the graph, that rate differential is just the 3m swap rate of say AUD (which comes from bond rates) minus the 3m swap rate of USD, the most major currency pair not mentioned up there.. or the minus goes the other way round...
  180. Where are the Jobs

    NY and London, since every global investment bank in the world has flagship offices in both of those centers (in Asia it's split between HK and Singapore, and Chicago is very secondary)
  181. Realized Volatility Calculation

    so i think the question is coming down to the subtraction of mean returns.. technically when calculating this historical volatility, or standard deviation, you should subtract the mean return in the formula.. HOWEVER, it is market convention for the payout of volswaps and varswaps to NOT use...
  182. need some advice on choosing MFE over MBA and possible career prospects

    1) as bansalmohit said, do a little research as for difference between MFE and MBA material, there is tons just here on quantnet as well as elsewhere.. its silly to continually replicate this answer over and over again 2) as for minimum salary... this seems to be a pretty common misconception...
  183. FX Options delta-neutral strike

    hmm shouldn't the volatility of EURUSD and USDEUR be the same? we're looking at the standard deviation of log returns, they should be equal since every return of EURUSD is just -1 times the return of USDEUR.. also what about the premium adjustment.. in fx the dns is computed such that you...
  184. Options pricing close to maturity is just gambling?

    i dont know much about index options, but pricing short dated options is not gambling. for vanilla options, pricing is straightforward. for barrier options less than 1wk you can find some odd results that results from time weighting issues. but a legitimate trading desk will get these issues...
  185. Best instrument/method for speculation?

    perhaps joe the plumber shouldn't be dealing in equity derivatives but rather should be fixing toilets now if a trader with some capital behind him wants to make money on a stock having a lower bound but having no view on an actual increase, he should sell puts struck at the lower bound with an...
  186. Best instrument/method for speculation?

    yes, to your mom i went there
  187. Best instrument/method for speculation?

    if all you know is that it is not going to decline then just sell tons of atm put options, collect the premium, and invest it at the risk free rate. alternatively you could spend the free money you've collected on women and bottles of champagne since the bernanke has made it pointless to invest...
  188. Terminal Vs. Immediate Payoff for a Barrier

    Okay so you are asking the difference in price between an Instant One Touch and a Pay At Maturity One Touch. The difference is simply just the discount factor difference between maturity and expected time of trigger event given trigger occurs before maturity. If the total maturity is not...
  189. Double Barrier Options (Double Knock-outs)

    this is one approach more popular among market making desks is PDE methodology for DKOs, where you assume some form of SV/LV blended process and work backwards from the payout vs the MC where you project the paths out forward through time
  190. FX trader in investment bank/hedge fund, what do they do?

    1-3 pip spread I think is quite optimistic for a retail trader to be honest. I suppose it depends on the currency pair you're trading. As far as why funds tend to make more money trading spot than retail traders, I do think the spread is certainly partially to blame, but also hedge fund traders...
  191. FX trader in investment bank/hedge fund, what do they do?

    If you buy a bunch of EURUSD at 1.3500, exactly mid market, perhaps you have a 50% chance of making money. If you are a retail client who deals in not embarrassingly small size, you get quoted 1.3496/1.3504. If you then buy it at 1.3504 from the market maker or algo or whatever while the mid...
  192. Greeks

    yes of course, i was just concerned with the statement "Thus, if delta is zero and theta is large and positive, gamma is likely to be large in magnitude and negative in sign." thats all.. the post seemed to reflect that what the delta of a portfolio is really matters.. really nothing has to do...
  193. Most super newbie question

    this seems a bit unclear.. i mean i guess so.. but maybe a bit more detail about what you're trying to accomplish might give us a better idea of how to help you?
  194. What is this option ???

    agreed - best method i think for this is MC using stochastic/local volatility blended process
  195. What is this option ???

    it is not a compound option (i.e. call on call option). that would be the right to buy an option on T1. since your decision is made only on where the stock price is and not where the option price is, this is materially different from a compound option and actually should be easier to price and...
  196. Greeks

    delta shouldn't have to be zero for the gamma/theta relationships to hold. in fact when the delta of an option is zero, both theta and gamma will also be zero.
  197. Greeks: barrier up-and-out

    haha priceless no its not a stupid question
  198. Goldman to Close Global Alpha fund

    china buying everything
  199. Goldman to Close Global Alpha fund

    meh i used to deal with them and they sucked so much they shut down their trading program in my asset class 3 months ago after having only doing it for a few months.. whatever.. this kepos fund i believe are the same people and they are now doing the same sort of stuff
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