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A Conditional Valuation Approach for Path-Dependent Instruments

This paper focuses on the methodology for calculating the potential future exposure of path-dependent derivative instruments.

Dante Lomibao and Steven Zhu
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A VaR-based Model for the Yield Curve

An intuitive model for the yield curve, based on the notion of value-at-risk, is presented. It leads to interest rates that hedge against potential losses incurred from holding an underlying risky security until maturity. This result is also shown to tie in directly with the Capital Asset Pricing Model via the Sharpe Ratio. The conclusion here is that the normal yield curve can be characterised by a constant Sharpe Ratio, non-dimensionalised with respect to √T, where T is the bond maturity.

Ruben D. Cohen
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Anything Built By the FED, Can Also Be Destroyed

In this commentary, Edward Talisse examines the year’s bond investment, looking closely at the USA and countries in Europe including Spain, Italy and Greece.

Edward Talisse
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Building Your Wings on the Way Down

Aaron Brown discusses financial risk in this article from Wilmott Magazine.

Aaron Brown
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Forecasting the Yield Curve with S-Plus

In this paper, Dario Cziráky, shows how to implement the Nelson-Siegel and Svensson models using non-linear least squares and how to obtain standard errors and confidence intervals for the parameters, which proves to be useful in assessing the goodness-of-fit at specific points in the term structure, such as at the events of non-parallel shifts.

Dario Cziráky
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Introduction to Variance Swaps

The purpose of this article is to introduce the properties of variance swaps, and give insights into the hedging and valuation of these instruments from the particular lens of an option trader.

Sebastien Bossu
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Order Statistics for Value at Risk Estimation and Option Pricing

We apply order statistics to the setting of VaR estimation. Here techniques like historical and Monte Carlo simulation rely on using the k-th heaviest loss to estimate the quantile of the profit and loss distribution of a portfolio of assets. We show that when the k-th heaviest loss is used the expected quantile and its error will be independent of the portfolio composition and the return functions of the assets in the portfolio.

Frederik Herzberg & Christoph Bennemann
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Potential Future Exposure Calculations Using the BGM Model

Within this paper the authors look at the BGM model in PFE calculations for various exotic interest rate products.

Wilmott
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Risk Management: A Review

Dr. Sébastien Lleo presents CQF Institute members with his review in Risk Management.

Sébastien Lleo
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Rootless Vol

Kent Osband discusses the Brownian motion in this Wilmott article.

Kent Osband

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