[ 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

# Category: Quants

# 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

# Interesting quant blog

A quick post to show a link to the blog of Tim Johnson at Heriot-Watt Unviersity. Lots of writing on derivatives topics, from models to regulations, plus plenty on markets and the crisis. Worth a look. Click here to visit.

# The efficient frontier for financial modelling

There is a trade off between the explanatory powers of a model and its complexity: the more a model explains, the more complex it will be. Would you disagree with that? Before you answer, let me make a claim: Mathematics is about revealing patterns that simplify. The mathematician's work is actually based on producing simplicity, … Continue reading The efficient frontier for financial modelling

# 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!

# A quant trading model for swap spreads

I recently wrote quite a long post on swap spreads (click here to see that post), covering some general intuition about swap spreads: what does a swap spread represent, why does it move, when does it move, which direction does it go, etc. My blog stats show that a lot of people have read it, so … Continue reading A quant trading model for swap spreads

# Facts, rules of thumb, and intuition for swap spreads

The N-year swap spread is defined as: N-yr swap spread := N-yr swap rate - N-yr government bond yield. Since most quants spend much less time on the bond market than on the swaps market, they often don't come to appreciate the central importance of the swap spread. Here is an unordered list of why … Continue reading Facts, rules of thumb, and intuition for swap spreads