Setting up QuantLib in Linux

[ This is an article that I started writing a few years back, when I was experimenting with Puppy Linux, then put on hold. Much of it is still useful, so the post merits to go public. ] Having written a walk-through on how to set up a Linux system ready for compiling software (see here), … Continue reading Setting up QuantLib in Linux →

The easy route to risk-neutral measure pricing

The principle of pricing in the risk-neutral measure is the foundation of quantitative analysis. I have already written a post which gives an intuitive description of the concept of a risk premium and which discusses some aspects of the risk-neutral approach (see here). In this post I want to look again at risk-neutral pricing. It … Continue reading The easy route to risk-neutral measure pricing →

Are our models too complex?

Gillian Tett is a well-respected writer for the Financial Times and frequently picks up the topic of complexity in financial markets. In a recent article (see here) she makes a case that the era of number crunching is over, and that the world of investments is back again firmly in the domain of human relationships … Continue reading Are our models too complex? →

Smile, it’s Volga!

Armed with the Hardy Decomposition for option prices, it now becomes much easier to understand why the smile exists. To be clear, options trader might use the smile to manage supply & demand, but here we discuss the mathematical basis for smile - which is important if you want to understand how to generate smile … Continue reading Smile, it’s Volga! →

Calculating option prices in your head

We all know that option prices are calculated with the Black-Scholes formula, using a volatility, time-to-maturity, strike and forward. Typically you just chuck them all into your computer and let it spit out the number. Trouble with this is how do you get an intuition for prices, especially when you are looking at options trades … Continue reading Calculating option prices in your head →