WILMOTT Magazine: January 2023 issue

Volume 2023, Issue 123. Pages 1-84

Every issue we bring you original material from some of the best columnists, educators and cutting-edge researchers. Subscribe here.

In this issue:

  • D. Tudball, “Contents,” Wilmott, vol. 2023, iss. 123, p. 1–1, 2023.
    [Bibtex] [Abstract]
    Contents
    @article{WILM:WILM11079,
    title = {Contents},
    author = {Tudball, Daniel},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {1--1},
    doi = {10.54946/wilm.11079},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11079},
    abstract = {Contents}
    }
  • D. Tudball, “Somethin’s Gotta Give,” Wilmott, vol. 2023, iss. 123, p. 2–3, 2023.
    [Bibtex]
    @article{WILM:WILM11080,
    title = {{Somethin’s Gotta Give}},
    author = {Tudball, Daniel},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {2--3},
    doi = {10.54946/wilm.11080},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11080},
    abstract = {}
    }
  • D. Tudball, “News,” Wilmott, vol. 2023, iss. 123, p. 4–4, 2023.
    [Bibtex] [Abstract]
    News
    @article{WILM:WILM11081,
    title = {{News}},
    author = {Tudball, Daniel},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {4--4},
    doi = {10.54946/wilm.11081},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11081},
    abstract = {News}
    }
  • A. Brown, “Five and Dime,” Wilmott, vol. 2023, iss. 123, p. 6–9, 2023.
    [Bibtex] [Abstract]
    Aaron Brown takes us on a trip to the transition zone between Mediocristan and Extremistan. Don’t forget your baseball bat!
    @article{WILM:WILM11082,
    title = {{Five and Dime}},
    author = {Brown, Aaron},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {6--9},
    doi = {10.54946/wilm.11082},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11082},
    abstract = {Aaron Brown takes us on a trip to the transition zone between Mediocristan and Extremistan. Don’t forget your baseball bat!}
    }
  • R. Poulsen, “We Hold These Truths not to be Self-evident, Part 1: Two Wrongs Making a Right,” Wilmott, vol. 2023, iss. 123, p. 10–11, 2023.
    [Bibtex] [Abstract]
    Risk-neutral pricing, swap valuation, and the Black-Scholes call option Delta.
    @article{WILM:WILM11083,
    title = {{We Hold These Truths not to be Self-evident, Part 1: Two Wrongs Making a Right}},
    author = {Poulsen, Rolf},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {10--11},
    doi = {10.54946/wilm.11083},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11083},
    abstract = {Risk-neutral pricing, swap valuation, and the Black-Scholes call option Delta.}
    }
  • U. Wystup, “How a Long Call Option can be Long Gamma, Long Theta and Short Theta,” Wilmott, vol. 2023, iss. 123, p. 12–14, 2023.
    [Bibtex] [Abstract]
    All at the same time. No kidding.
    @article{WILM:WILM11084,
    title = {{How a Long Call Option can be Long Gamma, Long Theta and Short Theta}},
    author = {Wystup, Uwe},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {12--14},
    doi = {10.54946/wilm.11084},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11084},
    abstract = {All at the same time. No kidding.}
    }
  • M. Benzaquen, “Cross-impact in Derivative Markets,” Wilmott, vol. 2023, iss. 123, p. 16–28, 2023.
    [Bibtex] [Abstract]
    Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. The empirical estimation of this effect on complex financial instruments, such as derivatives, is an open problem, tackled in this issue’s cover article ‘Cross-impact in Derivative Markets’ by Michael Benzaquen, Mehdi Tomas and Iacopo Mastromatteo. To address this, the authors consider a setting in which the prices of derivatives is a deterministic function of stochastic factors where trades on both factors and derivatives induce price impact. Benzaquen, Tomas and Mastromatteo show that a specific cross-impact model satisfies key properties which make its estimation tractable in applications. Using E-Mini futures, European call and put options and VIX futures, the authors estimate cross-impact and show our simple framework successfully captures some of the empirical phenomenology. Benzaquen et al’s framework for estimating cross-impact on derivatives may be used in practice for estimating hedging costs or building liquidity metrics on derivative markets.
    @article{WILM:WILM11085,
    title = {{Cross-impact in Derivative Markets}},
    author = {Benzaquen, Michael},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {16--28},
    doi = {10.54946/wilm.11085},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11085},
    abstract = {Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. The empirical estimation of this effect on complex financial instruments, such as derivatives, is an open problem, tackled in this issue’s cover article ‘Cross-impact in Derivative Markets’ by Michael Benzaquen, Mehdi Tomas and Iacopo Mastromatteo. To address this, the authors consider a setting in which the prices of derivatives is a deterministic function of stochastic factors where trades on both factors and derivatives induce price impact. Benzaquen, Tomas and Mastromatteo show that a specific cross-impact model satisfies key properties which make its estimation tractable in applications. Using E-Mini futures, European call and put options and VIX futures, the authors estimate cross-impact and show our simple framework successfully captures some of the empirical phenomenology. Benzaquen et al’s framework for estimating cross-impact on derivatives may be used in practice for estimating hedging costs or building liquidity metrics on derivative markets.}
    }
  • C. Alexander, “Volume and Volatility Spillovers Between Crypto Exchanges,” Wilmott, vol. 2023, iss. 123, p. 30–34, 2023.
    [Bibtex] [Abstract]
    With increasing institutional adoption of crypto assets and derivatives positions Carol Alexander, Andreas Kaeck, and Daniel Heck examine the need for in-depth understanding of the microstructure in these fragmented markets.
    @article{WILM:WILM11086,
    title = {{Volume and Volatility Spillovers Between Crypto Exchanges}},
    author = {Alexander, Carol},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {30--34},
    doi = {10.54946/wilm.11086},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11086},
    abstract = {With increasing institutional adoption of crypto assets and derivatives positions Carol Alexander, Andreas Kaeck, and Daniel Heck examine the need for in-depth understanding of the microstructure in these fragmented markets.}
    }
  • S. Das, “Alice Through The Crypto Glass Part 3 – The Empire Strikes Back: Central Bank Digital Currencies (CBDCs),” Wilmott, vol. 2023, iss. 123, p. 36–38, 2023.
    [Bibtex] [Abstract]
    All indications are that the introduction of CBDCs is probable. Could this completely undermine the crypto project?
    @article{WILM:WILM11087,
    title = {{Alice Through The Crypto Glass Part 3 – The Empire Strikes Back: Central Bank Digital Currencies (CBDCs)}},
    author = {Das, Satyajit},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {36--38},
    doi = {10.54946/wilm.11087},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11087},
    abstract = {All indications are that the introduction of CBDCs is probable. Could this completely undermine the crypto project?}
    }
  • J. Andreasen, “Catch Up,” Wilmott, vol. 2023, iss. 123, p. 40–45, 2023.
    [Bibtex] [Abstract]
    We consider finite difference implementation of local volatility models when the underlying has a non-trivial drift. For this case, we develop a finite difference scheme that guarantees positive transition probabilities and also handle the case where the input option prices are not fully arbitrage consistent. We include C++ code for our finite difference solver.
    @article{WILM:WILM11088,
    title = {{Catch Up}},
    author = {Andreasen, Jesper},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {40--45},
    doi = {10.54946/wilm.11088},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11088},
    abstract = {We consider finite difference implementation of local volatility models when the underlying has a non-trivial drift. For this case, we develop a finite difference scheme that guarantees positive transition probabilities and also handle the case where the input option prices are not fully arbitrage consistent. We include C++ code for our finite difference solver.}
    }
  • G. Giller, “The Sharpe Ratio is a Terrible Statistic to Use to Optimize Trading Strategies,” Wilmott, vol. 2023, iss. 123, p. 46–49, 2023.
    [Bibtex] [Abstract]
    All the theory associated with the Sharpe Ratio is based upon ex ante estimates of return and risk, but the overwhelming majority of its use is as an ex post measure of performance: that is, as a statistic.
    @article{WILM:WILM11089,
    title = {{The Sharpe Ratio is a Terrible Statistic to Use to Optimize Trading Strategies}},
    author = {Giller, Graham},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {46--49},
    doi = {10.54946/wilm.11089},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11089},
    abstract = {All the theory associated with the Sharpe Ratio is based upon ex ante estimates of return and risk, but the overwhelming majority of its use is as an ex post measure of performance: that is, as a statistic.}
    }
  • L. Ballabio, “A Taste of QuantLib,” Wilmott, vol. 2023, iss. 123, p. 50–52, 2023.
    [Bibtex] [Abstract]
    What is it and what can it do for you?
    @article{WILM:WILM11090,
    title = {{A Taste of QuantLib}},
    author = {Ballabio, Luigi},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {50--52},
    doi = {10.54946/wilm.11090},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11090},
    abstract = {What is it and what can it do for you?}
    }
  • M. Kelly, “Fixed Income and Debt Instruments: Annuities, Bonds, Cashflows and Mortgages,” Wilmott, vol. 2023, iss. 123, p. 54–58, 2023.
    [Bibtex] [Abstract]
    This is the first in a sequence of articles on finance using the Wolfram language. While this essay covers fixed-income instruments, future essays will cover financial derivatives, time series analysis, machine learning in finance, financial visualization and data services.
    @article{WILM:WILM11091,
    title = {{Fixed Income and Debt Instruments: Annuities, Bonds, Cashflows and Mortgages}},
    author = {Kelly, Michael},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {54--58},
    doi = {10.54946/wilm.11091},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11091},
    abstract = {This is the first in a sequence of articles on finance using the Wolfram language. While this essay covers fixed-income instruments, future essays will cover financial derivatives, time series analysis, machine learning in finance, financial visualization and data services.}
    }
  • J. Marsden, “Referential Objects: A Coda,” Wilmott, vol. 2023, iss. 123, p. 60–61, 2023.
    [Bibtex] [Abstract]
    If we shadows have offended, think but this and all is mended.
    @article{WILM:WILM11092,
    title = {{Referential Objects: A Coda}},
    author = {Marsden, Joseph},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {60--61},
    doi = {10.54946/wilm.11092},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11092},
    abstract = {If we shadows have offended, think but this and all is mended.}
    }
  • D. Bloch, “Option Prices Expansions and Applications,” Wilmott, vol. 2023, iss. 123, p. 62–81, 2023.
    [Bibtex] [Abstract]
    Daniel Bloch presents a general pricing approximation technique for European call option prices in a jump-diffusion model with stochastic interest rates. The author considers the dynamics of the logarithm of the forward price, under the forward measure, in the class of multifactor Affine and Quadratic models without jumps, and devise the dynamics of its associated variance swap. Bloch expresses the expected future average volatility as a function of that variance swap, and uses classical Ito’s calculus to expand prices around the Black formula. The author then adds jumps to the dynamics of the log-forward price and condition the expectation of the call price with respect to the number of jumps. Applying a change of measure, option prices decompose into a weighted sum of approximated multifactor Affine and Quadratic models. Bloch uses these prices decompositions to define an analytical formula that approximate the implied volatility surface in the class of Affine and Quadratic models with jumps. At last, the author compares a few prices approximations against Monte Carlo simulations for a range of maturities covering one year, and provide accuracy measures. Bloch then uses these prices as benchmark to measure the accuracy of the implied volatility surface expansion. The author obtains very low MAE and RMSE, both on the prices and IVS, demonstrating that the series expansions are very precise for short and long maturities. Applications include: fast prices and Greeks estimation for European options, initial values for numerical computation of IVS, and control variate for complex pricing models in Monte Carlo and Machine Learning.
    @article{WILM:WILM11093,
    title = {{Option Prices Expansions and Applications}},
    author = {Bloch, Daniel},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {62--81},
    doi = {10.54946/wilm.11093},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11093},
    abstract = {Daniel Bloch presents a general pricing approximation technique for European call option prices in a jump-diffusion model with stochastic interest rates. The author considers the dynamics of the logarithm of the forward price, under the forward measure, in the class of multifactor Affine and Quadratic models without jumps, and devise the dynamics of its associated variance swap. Bloch expresses the expected future average volatility as a function of that variance swap, and uses classical Ito's calculus to expand prices around the Black formula. The author then adds jumps to the dynamics of the log-forward price and condition the expectation of the call price with respect to the number of jumps. Applying a change of measure, option prices decompose into a weighted sum of approximated multifactor Affine and Quadratic models. Bloch uses these prices decompositions to define an analytical formula that approximate the implied volatility surface in the class of Affine and Quadratic models with jumps. At last, the author compares a few prices approximations against Monte Carlo simulations for a range of maturities covering one year, and provide accuracy measures. Bloch then uses these prices as benchmark to measure the accuracy of the implied volatility surface expansion. The author obtains very low MAE and RMSE, both on the prices and IVS, demonstrating that the series expansions are very precise for short and long maturities. Applications include: fast prices and Greeks estimation for European options, initial values for numerical computation of IVS, and control variate for complex pricing models in Monte Carlo and Machine Learning.}
    }
  • M. Radley, “Family Affair,” Wilmott, vol. 2023, iss. 123, p. 82–83, 2023.
    [Bibtex] [Abstract]
    Ferrari Purosangue/Ferrari Daytona SP3. Ferrari launches the unthinkable: a race-bred SUV. In case you thought the Prancing Horse has gone soft, the specs on this suggest otherwise.
    @article{WILM:WILM11094,
    title = {{Family Affair}},
    author = {Radley, Milford},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {82--83},
    doi = {10.54946/wilm.11094},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11094},
    abstract = {Ferrari Purosangue/Ferrari Daytona SP3. Ferrari launches the unthinkable: a race-bred SUV. In case you thought the Prancing Horse has gone soft, the specs on this suggest otherwise.}
    }
  • J. Darasz, “The Skewed World of Jan Darasz,” Wilmott, vol. 2023, iss. 123, p. 84–84, 2023.
    [Bibtex] [Abstract]
    Cartoon
    @article{WILM:WILM11095,
    title = {{The Skewed World of Jan Darasz}},
    author = {Darasz, Jan},
    year = 2023,
    journal = {Wilmott},
    publisher = {Wilmott Magazine, Ltd},
    volume = 2023,
    number = 123,
    pages = {84--84},
    doi = {10.54946/wilm.11095},
    issn = {1541-8286},
    url = {http://dx.doi.org/10.54946/wilm.11095},
    abstract = {Cartoon}
    }

If you are a current subscriber login to see all articles as PDFs.

More information about Wilmott magazine, for potential subscribers and submission of articles and research papers, can be found here.