Volume 2023, Issue 126. Pages 1-108
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In this issue:
- D. Tudball, ,” Wilmott, vol. 2023, iss. 126, p. 1–1, 2023.
[Bibtex] [Abstract]Contents
@article{WILM:WILM11137, title = {{}}, author = {Tudball, Daniel}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {1--1}, doi = {10.54946/wilm.11137}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11137}, abstract = {Contents} } - D. Tudball, “In Other Words,” Wilmott, vol. 2023, iss. 126, p. 2–3, 2023.
[Bibtex]@article{WILM:WILM11138, title = {{In Other Words}}, author = {Tudball, Daniel}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {2--3}, doi = {10.54946/wilm.11138}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11138}, abstract = {} } - U. Wystup, “Shorts Should not be Worn too Long,” Wilmott, vol. 2023, iss. 126, p. 4–6, 2023.
[Bibtex] [Abstract]If indices fall by 10 percent, shorts will rise by the same amount, right? Buckle up, we’re in for a ride
@article{WILM:WILM11139, title = {{Shorts Should not be Worn too Long}}, author = {Wystup, Uwe}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {4--6}, doi = {10.54946/wilm.11139}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11139}, abstract = {If indices fall by 10 percent, shorts will rise by the same amount, right? Buckle up, we’re in for a ride} } - G. Giller, “Thinking Differently About Asset Allocation,” Wilmott, vol. 2023, iss. 126, p. 8–11, 2023.
[Bibtex] [Abstract]What aspects of nature are omitted from the mean-variance optimization framework that would lead to the observation that different strategies outperform in the real world?
@article{WILM:WILM11140, title = {{Thinking Differently About Asset Allocation}}, author = {Giller, Graham}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {8--11}, doi = {10.54946/wilm.11140}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11140}, abstract = {What aspects of nature are omitted from the mean-variance optimization framework that would lead to the observation that different strategies outperform in the real world?} } - J. Andreasen, “Explain Yourself,” Wilmott, vol. 2023, iss. 126, p. 12–16, 2023.
[Bibtex] [Abstract]We consider techniques to reduce the computational complexity of computing high-order P&L explains. Specifically, we show that you only need first-order risk to compute third-order accurate P&L explains. P&L explains often go bad in practice. We discuss why and what you can do about it.
@article{WILM:WILM11141, title = {{Explain Yourself}}, author = {Andreasen, Jesper}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {12--16}, doi = {10.54946/wilm.11141}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11141}, abstract = {We consider techniques to reduce the computational complexity of computing high-order P&L explains. Specifically, we show that you only need first-order risk to compute third-order accurate P&L explains. P&L explains often go bad in practice. We discuss why and what you can do about it.} } - R. Bogni, “Language and the LLMs,” Wilmott, vol. 2023, iss. 126, p. 18–19, 2023.
[Bibtex] [Abstract]Concerns abound as the world cuddles up to ChatGPT, not least the impact that outsourcing the natural development of language might have on the haves and the have-nots
@article{WILM:WILM11142, title = {{Language and the LLMs}}, author = {Bogni, Rudi}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {18--19}, doi = {10.54946/wilm.11142}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11142}, abstract = {Concerns abound as the world cuddles up to ChatGPT, not least the impact that outsourcing the natural development of language might have on the haves and the have-nots} } - L. Ballabio, “Assessing duration risk with QuantLib,” Wilmott, vol. 2023, iss. 126, p. 20–24, 2023.
[Bibtex] [Abstract]Learning from other banks’ mistakes
@article{WILM:WILM11143, title = {{Assessing duration risk with QuantLib}}, author = {Ballabio, Luigi}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {20--24}, doi = {10.54946/wilm.11143}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11143}, abstract = {Learning from other banks' mistakes} } - M. Kelly, “Machine Learning In Finance,” Wilmott, vol. 2023, iss. 126, p. 26–37, 2023.
[Bibtex] [Abstract]In this article, we will focus on machine learning (ML) or as it is more popularly called, artificial intelligence (AI)
@article{WILM:WILM11144, title = {{Machine Learning In Finance}}, author = {Kelly, Michael}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {26--37}, doi = {10.54946/wilm.11144}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11144}, abstract = {In this article, we will focus on machine learning (ML) or as it is more popularly called, artificial intelligence (AI)} } - D. Tudball, “Black-Scholes 50th Anniversary,” Wilmott, vol. 2023, iss. 126, p. 38–39, 2023.
[Bibtex]@article{WILM:WILM11145, title = {{Black-Scholes 50th Anniversary}}, author = {Tudball, Daniel}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {38--39}, doi = {10.54946/wilm.11145}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11145}, abstract = {} } - N. Taleb, “Tail Option Pricing Under Power Laws,” Wilmott, vol. 2023, iss. 126, p. 40–45, 2023.
[Bibtex] [Abstract]We build a methodology for which the heuristic produces relative prices for options, with for sole parameter the tail index, under some mild arbitrage constraints. Usual restrictions such as finiteness of variance are not required. The heuristic allows us to scrutinize the volatility surface and test various theories of relative tail option overpricing (usually built on thin tailed models and minor modifications/fudging of the Black-Scholes formula).
@article{WILM:WILM11146, title = {{Tail Option Pricing Under Power Laws}}, author = {Taleb, Nassim}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {40--45}, doi = {10.54946/wilm.11146}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11146}, abstract = {We build a methodology for which the heuristic produces relative prices for options, with for sole parameter the tail index, under some mild arbitrage constraints. Usual restrictions such as finiteness of variance are not required. The heuristic allows us to scrutinize the volatility surface and test various theories of relative tail option overpricing (usually built on thin tailed models and minor modifications/fudging of the Black-Scholes formula).} } - A. Brown, “71,’87,” Wilmott, vol. 2023, iss. 126, p. 46–47, 2023.
[Bibtex] [Abstract]This celebration should lead us to think about the history and the most important idea that no one really appreciated at the time.
@article{WILM:WILM11147, title = {{71,'87}}, author = {Brown, Aaron}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {46--47}, doi = {10.54946/wilm.11147}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11147}, abstract = {This celebration should lead us to think about the history and the most important idea that no one really appreciated at the time.} } - F. Lyashenko Andrei. Mercurio, “The Generalized Forward Market Model: Summary of Results and Extensions,” Wilmott, vol. 2023, iss. 126, p. 48–57, 2023.
[Bibtex] [Abstract]In this paper, we review the generalized Forward Market Model (FMM) and its subsequent extension introduced by Lyashenko and Mercurio (2019, 2020). We then introduce new analytical results and discuss the issue of discontinuity of the implied instantaneous rates. We conclude by suggesting a new generalization that decouples the volatilities of the short rate from those of the FMM rates.
@article{WILM:WILM11148, title = {{The Generalized Forward Market Model: Summary of Results and Extensions}}, author = {Lyashenko, Andrei. Mercurio, Fabio}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {48--57}, doi = {10.54946/wilm.11148}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11148}, abstract = {In this paper, we review the generalized Forward Market Model (FMM) and its subsequent extension introduced by Lyashenko and Mercurio (2019, 2020). We then introduce new analytical results and discuss the issue of discontinuity of the implied instantaneous rates. We conclude by suggesting a new generalization that decouples the volatilities of the short rate from those of the FMM rates.} } - A. L. G. Hauser Peter. Kumiega and G. Sterijevski, “A financial Möbius strip: Black-Scholes and Technology,” Wilmott, vol. 2023, iss. 126, p. 58–62, 2023.
[Bibtex] [Abstract]Peter Hauser, Andrew Kumiega, Gary Lahey, and Greg Sterijevski discuss how Black-Scholes and the later binomial tree calculations started many foundational technologies used in Fintech today.
@article{WILM:WILM11149, title = {{A financial Möbius strip: Black-Scholes and Technology}}, author = {Hauser, Peter. Kumiega, Andrew. Lahey,Gary and Sterijevski, Greg}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {58--62}, doi = {10.54946/wilm.11149}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11149}, abstract = {Peter Hauser, Andrew Kumiega, Gary Lahey, and Greg Sterijevski discuss how Black-Scholes and the later binomial tree calculations started many foundational technologies used in Fintech today.} } - A. Swishchuk, “Romancing with Black-Scholes Model: An Overview,” Wilmott, vol. 2023, iss. 126, p. 64–74, 2023.
[Bibtex] [Abstract]This paper is an overview of our previous and recent results associated with the modifications of Black-Scholes model and formula. There were and are attempts to extend the classical Black-Scholes model by introducing the randomness into the coefficients r, μ, σ (interest rate, drift and volatility, respectfully) or to describe them by SDEs, and so on, and then to find explicit or close-form formulas for the hedging strategies and option prices. If coefficients r, μ, σ depend on some parameter x ∈X, where X is some state space, i.e., r(x), μ(x), σ(x) then we call it (B, S, X)-security markets or (B, S)-security markets in random environment X. We consider different (B, S, X)-securities markets, including Markov, semi‑Markov cases, jumps, and analogues/generalizations of Black-Scholes formulas for them. Black-Scholes formula with delay is also presented. Then we consider two types of telegraph process, classical/symmetric and asymmetric, and give two applications of those telegraph processes in finance by presenting European call and put option prices. Moreover, We introduce a new type of Hawkes process, namely, the exponential one-dimensional general compound Hawkes process (E1DGCHP), consider its limit theorems (LLN and FCLT) and present analogue of Black‑Scholes formula in this case. Numerical examples are presented for both telegraph processes and E1DGCHP.
@article{WILM:WILM11150, title = {{Romancing with Black-Scholes Model: An Overview}}, author = {Swishchuk, Anatoliy}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {64--74}, doi = {10.54946/wilm.11150}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11150}, abstract = {This paper is an overview of our previous and recent results associated with the modifications of Black-Scholes model and formula. There were and are attempts to extend the classical Black-Scholes model by introducing the randomness into the coefficients r, μ, σ (interest rate, drift and volatility, respectfully) or to describe them by SDEs, and so on, and then to find explicit or close-form formulas for the hedging strategies and option prices. If coefficients r, μ, σ depend on some parameter x ∈X, where X is some state space, i.e., r(x), μ(x), σ(x) then we call it (B, S, X)-security markets or (B, S)-security markets in random environment X. We consider different (B, S, X)-securities markets, including Markov, semi‑Markov cases, jumps, and analogues/generalizations of Black-Scholes formulas for them. Black-Scholes formula with delay is also presented. Then we consider two types of telegraph process, classical/symmetric and asymmetric, and give two applications of those telegraph processes in finance by presenting European call and put option prices. Moreover, We introduce a new type of Hawkes process, namely, the exponential one-dimensional general compound Hawkes process (E1DGCHP), consider its limit theorems (LLN and FCLT) and present analogue of Black‑Scholes formula in this case. Numerical examples are presented for both telegraph processes and E1DGCHP.} } - L. Ballotta, “Once upon a time there was a magic formula …,” Wilmott, vol. 2023, iss. 126, p. 76–78, 2023.
[Bibtex] [Abstract]Black-Scholes is an illuminating example of cross-pollination, which has led to a new field of study, mathematical finance, and a deeper understanding of the pricing mechanisms for any security in the market.
@article{WILM:WILM11151, title = {{Once upon a time there was a magic formula …}}, author = {Ballotta, Laura}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {76--78}, doi = {10.54946/wilm.11151}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11151}, abstract = {Black-Scholes is an illuminating example of cross-pollination, which has led to a new field of study, mathematical finance, and a deeper understanding of the pricing mechanisms for any security in the market.} } - D. Bloch, “A Review Of “The Pricing of Options and Corporate Liabilities”,” Wilmott, vol. 2023, iss. 126, p. 80–89, 2023.
[Bibtex] [Abstract]This year we celebrate the 50th anniversary of the seminal paper, “The Pricing of Options and Corporate Liabilities”, in which the famous Black-Scholes formula was introduced. We will chronicle and review the literature predating and post-dating the publication of this work in order to identify precisely which new concepts they introduced to the field.
@article{WILM:WILM11152, title = {{A Review Of "The Pricing of Options and Corporate Liabilities"}}, author = {Bloch, Daniel}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {80--89}, doi = {10.54946/wilm.11152}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11152}, abstract = {This year we celebrate the 50th anniversary of the seminal paper, “The Pricing of Options and Corporate Liabilities”, in which the famous Black-Scholes formula was introduced. We will chronicle and review the literature predating and post-dating the publication of this work in order to identify precisely which new concepts they introduced to the field.} } - D. Orrell, “The Black-Scholes Magic Trick, Explained!,” Wilmott, vol. 2023, iss. 126, p. 90–93, 2023.
[Bibtex] [Abstract]While it is really a predictive formula, which estimates option prices based on a probabilistic price distribution, its trick is to present itself as a prescriptive formula (which somehow defines the correct option price — like a mentalist who predicts the future by making it happen. By using it as a calculating device, investors only seem to confirm its predictions. What kind of higher-level voodoo is this?
@article{WILM:WILM11153, title = {{The Black-Scholes Magic Trick, Explained!}}, author = {Orrell, David}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {90--93}, doi = {10.54946/wilm.11153}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11153}, abstract = {While it is really a predictive formula, which estimates option prices based on a probabilistic price distribution, its trick is to present itself as a prescriptive formula (which somehow defines the correct option price — like a mentalist who predicts the future by making it happen. By using it as a calculating device, investors only seem to confirm its predictions. What kind of higher-level voodoo is this?} } - J. Kienitz, “Hedging in the Age of Statistical Learning,” Wilmott, vol. 2023, iss. 126, p. 94–102, 2023.
[Bibtex] [Abstract]A data driven and model free1 approach termed Proxy GMM Hedge for hedging is introduced.
@article{WILM:WILM11154, title = {{Hedging in the Age of Statistical Learning}}, author = {Kienitz, Jorg}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {94--102}, doi = {10.54946/wilm.11154}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11154}, abstract = {A data driven and model free1 approach termed Proxy GMM Hedge for hedging is introduced.} } - R. Poulsen, “There is No I in Black- Scholes but There is Me in Merton,” Wilmott, vol. 2023, iss. 126, p. 103–105, 2023.
[Bibtex] [Abstract]Looking at these seminal, Nobel-prize winning contributions, that arguably founded the field of quantitative finance half a century on, the natural question is: How can I make this about me? Easy.
@article{WILM:WILM11155, title = {{There is No I in Black- Scholes but There is Me in Merton}}, author = {Poulsen, Rolf}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {103--105}, doi = {10.54946/wilm.11155}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11155}, abstract = {Looking at these seminal, Nobel-prize winning contributions, that arguably founded the field of quantitative finance half a century on, the natural question is: How can I make this about me? Easy.} } - M. Radley, “Second Serving/Mercurial Merc,” Wilmott, vol. 2023, iss. 126, p. 106–107, 2023.
[Bibtex] [Abstract]BMW M2/Mercedes-AMG S 63 E Performance
@article{WILM:WILM11156, title = {{Second Serving/Mercurial Merc}}, author = {Radley, Milford}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {106--107}, doi = {10.54946/wilm.11156}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11156}, abstract = {BMW M2/Mercedes-AMG S 63 E Performance} } - J. Darasz, “The Skewed World of Jan Darasz,” Wilmott, vol. 2023, iss. 126, p. 108–108, 2023.
[Bibtex] [Abstract]Cartoon
@article{WILM:WILM11157, title = {{The Skewed World of Jan Darasz}}, author = {Darasz, Jan}, year = 2023, journal = {Wilmott}, publisher = {Wilmott Magazine, Ltd}, volume = 2023, number = 126, pages = {108--108}, doi = {10.54946/wilm.11157}, issn = {1541-8286}, url = {http://dx.doi.org/10.54946/wilm.11157}, abstract = {Cartoon} }
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