Volume 2022, Issue 120. 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. 2022, iss. 120, p. 1–1, 2022.
[Bibtex] [Abstract]Contents
@article{WILM:WILM11020, title = {Contents}, author = {Tudball, Daniel}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {1--1}, doi = {10.54946/wilm.11020}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11020}, abstract = {Contents} } - D. Tudball, “All nature seemed to be, in perfect harmony,” Wilmott, vol. 2022, iss. 120, p. 2–3, 2022.
[Bibtex] [Abstract]it interprets market behavior in terms of entropic forces which, when expressed in quantum terms, can account for a variety of behavioral effects of the sort studied in quantum cognition and quantum decision theory
@article{WILM:WILM11021, title = {All Nature Seemed To Be, in Perfect Harmony}, author = {Tudball, Daniel}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {2--3}, doi = {10.54946/wilm.11021}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11021}, abstract = {it interprets market behavior in terms of entropic forces which, when expressed in quantum terms, can account for a variety of behavioral effects of the sort studied in quantum cognition and quantum decision theory} } - D. Tudball, “News,” Wilmott, vol. 2022, iss. 120, p. 4–7, 2022.
[Bibtex] [Abstract]News
@article{WILM:WILM11022, title = {News}, author = {Tudball, Daniel}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {4--7}, doi = {10.54946/wilm.11022}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11022}, abstract = {News} } - R. Poulsen, “Peter carr in memoriam,” Wilmott, vol. 2022, iss. 120, p. 8–9, 2022.
[Bibtex] [Abstract]Taking a look at what first introduced the author to Peter Carr’s work; his 1990 paper with Robert Jarrow on the stop-loss start-gain paradox
@article{WILM:WILM11023, title = {Peter Carr In Memoriam}, author = {Poulsen, Rolf}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {8--9}, doi = {10.54946/wilm.11023}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11023}, abstract = {Taking a look at what first introduced the author to Peter Carr’s work; his 1990 paper with Robert Jarrow on the stop-loss start-gain paradox} } - A. Brown, “Should individual investors trade options?,” Wilmott, vol. 2022, iss. 120, p. 10–12, 2022.
[Bibtex] [Abstract]Some sensible option strategies deserve serious consideration by academics and personal finance authors
@article{WILM:WILM11024, title = {Should individual investors trade options?}, author = {Brown, Aaron}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {10--12}, doi = {10.54946/wilm.11024}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11024}, abstract = {Some sensible option strategies deserve serious consideration by academics and personal finance authors} } - U. Wystup, “Going forward step by step,” Wilmott, vol. 2022, iss. 120, p. 14–16, 2022.
[Bibtex] [Abstract]With continuous time in a local vol model one needs to apply extra care when using the probability density second order derivative further in the Dupire formula along with the time-derivative to compute local volatilities
@article{WILM:WILM11025, title = {Going Forward Step by Step}, author = {Wystup, Uwe}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {14--16}, doi = {10.54946/wilm.11025}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11025}, abstract = {With continuous time in a local vol model one needs to apply extra care when using the probability density second order derivative further in the Dupire formula along with the time-derivative to compute local volatilities} } - E. Ayache, “Authors crime,” Wilmott, vol. 2022, iss. 120, p. 18–19, 2022.
[Bibtex] [Abstract]The financial market is a self-fulfilling prophecy. Likewise, I couldn’t write about crime in finance unless that writing became the self-fulfilling prophecy of my own crime, or at least its confession.
@article{WILM:WILM11026, title = {Authors Crime}, author = {Ayache, Elie}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {18--19}, doi = {10.54946/wilm.11026}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11026}, abstract = {The financial market is a self-fulfilling prophecy. Likewise, I couldn’t write about crime in finance unless that writing became the self-fulfilling prophecy of my own crime, or at least its confession.} } - A. Spinner, “Impact of the covid 19 pandemic on the fungibility of gold,” Wilmott, vol. 2022, iss. 120, p. 20–24, 2022.
[Bibtex] [Abstract]How the pandemic impacted the gold market structure especially in terms of the relationship between a derivative market and its associated underlying’s market
@article{WILM:WILM11027, title = {Impact of the COVID 19 pandemic on the Fungibility of Gold}, author = {Spinner, Albin}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {20--24}, doi = {10.54946/wilm.11027}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11027}, abstract = {How the pandemic impacted the gold market structure especially in terms of the relationship between a derivative market and its associated underlying’s market} } - D. Orrell, “Quantum oscillations in the stock market,” Wilmott, vol. 2022, iss. 120, p. 26–33, 2022.
[Bibtex] [Abstract]This paper develops a quantum harmonic oscillator model of price fluctuations in a stock market, which builds on a previously-published quantum model of supply and demand, and can be viewed as a quantized version of a classical econometrics model first proposed in 1933. An advantage of the approach is that it interprets market behavior in terms of entropic forces which, when expressed in quantum terms, can account for a variety of behavioral effects of the sort studied in quantum cognition and quantum decision theory. The model helps to interpret quantities such as force, mass, frequency and energy in a financial setting, and is consistent with observed phenomena such as the square-root behavior of price impact.
@article{WILM:WILM11028, title = {Quantum oscillations in the stock market}, author = {Orrell, David}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {26--33}, doi = {10.54946/wilm.11028}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11028}, abstract = {This paper develops a quantum harmonic oscillator model of price fluctuations in a stock market, which builds on a previously-published quantum model of supply and demand, and can be viewed as a quantized version of a classical econometrics model first proposed in 1933. An advantage of the approach is that it interprets market behavior in terms of entropic forces which, when expressed in quantum terms, can account for a variety of behavioral effects of the sort studied in quantum cognition and quantum decision theory. The model helps to interpret quantities such as force, mass, frequency and energy in a financial setting, and is consistent with observed phenomena such as the square-root behavior of price impact.} } - E. Haug, “If they could see the simpler approach, they would feel much better about option-pricing theory,” Wilmott, vol. 2022, iss. 120, p. 34–39, 2022.
[Bibtex] [Abstract]When Cox Ross and Rubinstein formalized the binomial options pricing model proposed by Bill Sharpe, the goal was demystification. Here we present a conversation from Espen Gaarder Haug’s archives aimed at demystifying Rubinstein himself
@article{WILM:WILM11029, title = {If they could see the simpler approach, they would feel much better about option-pricing theory}, author = {Haug, Espen}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {34--39}, doi = {10.54946/wilm.11029}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11029}, abstract = {When Cox Ross and Rubinstein formalized the binomial options pricing model proposed by Bill Sharpe, the goal was demystification. Here we present a conversation from Espen Gaarder Haug’s archives aimed at demystifying Rubinstein himself} } - B. Ziemba, “Pegasus 2022,” Wilmott, vol. 2022, iss. 120, p. 40–59, 2022.
[Bibtex] [Abstract]The 2022 Pegasus was held on January 29 at Gulfstream Park and featured three major races (9, 11 and 12) plus an outstanding undercard
@article{WILM:WILM11030, title = {Pegasus 2022}, author = {Ziemba, Bill}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {40--59}, doi = {10.54946/wilm.11030}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11030}, abstract = {The 2022 Pegasus was held on January 29 at Gulfstream Park and featured three major races (9, 11 and 12) plus an outstanding undercard} } - J. Marsden, “Option pricing, risk premium, and arbitrage: an argument for volatility-modified risk-neutral prices,” Wilmott, vol. 2022, iss. 120, p. 60–68, 2022.
[Bibtex] [Abstract]A quandary in contemporary financial theory and practice is how observed asset price volatility should be represented in a pricing model in order to produce consistent prices. This article argues that the popular resolution to this question of using observed price volatilities without modification permits arbitrage, and it proposes an adaptation that eliminates this possibility.
@article{WILM:WILM11031, title = {Option Pricing, Risk Premium, and Arbitrage: An Argument for Volatility-Modified Risk-Neutral Prices}, author = {Marsden, Joseph}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {60--68}, doi = {10.54946/wilm.11031}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11031}, abstract = {A quandary in contemporary financial theory and practice is how observed asset price volatility should be represented in a pricing model in order to produce consistent prices. This article argues that the popular resolution to this question of using observed price volatilities without modification permits arbitrage, and it proposes an adaptation that eliminates this possibility.} } - A. Bloch Daniel. Book, “Smiling in action,” Wilmott, vol. 2022, iss. 120, p. 70–81, 2022.
[Bibtex] [Abstract]We propose to model the dynamics of the entire implied volatility surface (IVS) multi-step ahead by letting the parameters of a stochastic volatility model with an explicit expression for the smile be dynamically evolved. We assume that these model parameters are stochastic processes driven by some explanatory variables and use deep learning to infer their dynamics. For simplicity, we focus on the SVI model, let each model parameter have a term-structure, and learn to predict the future values of these parameters. The explanatory variables are the time series of the fitted model parameters and the time series of the forward prices. To capture the spatiotemporal relations of the IVS, we stack multiple convolutional LSTM (ConvLSTM) layers and form an encoding-forecasting structure, getting a network model capable of understanding the spatiotemporal relationships between strikes and time-to-maturities. However, this model is very sensitive to the term-structure of the model parameters and requires a very fine grid of volatility to converge. Thus, we simplify the model by considering a kernel of size one. The future smiles are reconstructed by using the parametric smile representation, where each parameter is replaced by its estimated value. We can then use the forecasted volatility surface for pricing and hedging options, performing risk analysis, as well as for volatility trading. We explore the performance of our model against a naive strategy by forecasting the volatility surface on the SP 500 option prices several steps ahead, and computing some measures of accuracy. On average, our model systematically outperforms the naive approach at predicting long term forecasts for short to mid-range maturities. This shows that the dynamics of the IVS are dominated by trend and mean reversion, hence predictable.
@Article {WILM:WILM11032, author= {Bloch, Daniel. Book, Artur}, title = {Smiling in Action}, journal = {Wilmott}, volume = {2022}, number = {120}, publisher = {Wilmott Magazine, Ltd}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11032}, doi = {10.54946/wilm.11032}, pages = {70--81}, year = {2022}, abstract ={We propose to model the dynamics of the entire implied volatility surface (IVS) multi-step ahead by letting the parameters of a stochastic volatility model with an explicit expression for the smile be dynamically evolved. We assume that these model parameters are stochastic processes driven by some explanatory variables and use deep learning to infer their dynamics. For simplicity, we focus on the SVI model, let each model parameter have a term-structure, and learn to predict the future values of these parameters. The explanatory variables are the time series of the fitted model parameters and the time series of the forward prices. To capture the spatiotemporal relations of the IVS, we stack multiple convolutional LSTM (ConvLSTM) layers and form an encoding-forecasting structure, getting a network model capable of understanding the spatiotemporal relationships between strikes and time-to-maturities. However, this model is very sensitive to the term-structure of the model parameters and requires a very fine grid of volatility to converge. Thus, we simplify the model by considering a kernel of size one. The future smiles are reconstructed by using the parametric smile representation, where each parameter is replaced by its estimated value. We can then use the forecasted volatility surface for pricing and hedging options, performing risk analysis, as well as for volatility trading. We explore the performance of our model against a naive strategy by forecasting the volatility surface on the SP 500 option prices several steps ahead, and computing some measures of accuracy. On average, our model systematically outperforms the naive approach at predicting long term forecasts for short to mid-range maturities. This shows that the dynamics of the IVS are dominated by trend and mean reversion, hence predictable.},} - M. Radley, “Mc glamour,” Wilmott, vol. 2022, iss. 120, p. 82–83, 2022.
[Bibtex] [Abstract]Maserati/BMW
@article{WILM:WILM11033, title = {MC Glamour}, author = {Radley, Milford}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {82--83}, doi = {10.54946/wilm.11033}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11033}, abstract = {Maserati/BMW} } - J. Darasz, “The skewed world of jan darasz,” Wilmott, vol. 2022, iss. 120, p. 84–84, 2022.
[Bibtex] [Abstract]Cartoon
@article{WILM:WILM11034, title = {The Skewed World of Jan Darasz}, author = {Darasz, Jan}, year = 2022, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2022, number = 120, pages = {84--84}, doi = {10.54946/wilm.11034}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11034}, 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.