Positive carry can be an obsession for fixed-income investors. For a simple explanation of carry for a bond position have a look at this well-written post: click here.
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
LIBOR vs LIBID
Everybody talks about LIBOR, and you don't really hear much about LIBID. In fact, the BBA only fixes LIBOR and LIBID is left to free float if you like. The fact is that most banks will need to borrow more than they will need to lend. Or rather, for each investment opportunity they see they will … Continue reading LIBOR vs LIBID
How to read the FT
Since moving back to a front office seat I have been a keen reader of the Financial Times. Regular reading of economic and finance journalism and analysis is a must if you want to understand the themes discussed around the trading floor. If you have tried and failed to get into the FT, it may be … Continue reading How to read the FT
Experimentation in Art & non-deterministic grammars
One of my favourite abstract painters is Richard Diebenkorn. Click here to see an Art Blog which has a post on his most famous Ocean Park Series. Click here for a link to a blog showing one of the Dibenkorn's canvases in an NY apartment. In these sorts of works it is fascinating how you can see … Continue reading Experimentation in Art & non-deterministic grammars
Intuition for the forward FX equation
Every quant knows the expression that defines a forward FX rate on date t with maturity T: where B_f is the foreign discount factor and B_d is the domestic discount factor. But what is the best way to explain this intuitively? Here is my suggestion. Let's pick an example pair, say EUR and CHF, and see … Continue reading Intuition for the forward FX equation
Some links on Lisp
Curious about the programming language Lisp? Follow these few links to some thought-stimulating commentary and sites. lisperati: a fun introduction to Lisp. Lisp as super-powered XML: I thought this article was a pretty good go at describing what is great about Lisp. Paul Graham: generally interesting chap who made a lot of money with a … Continue reading Some links on Lisp
PhD Mathematics
For anyone interested, here are a few links to academic articles I wrote during my PhD on probability theory. I would say that one of the most pleasing parts of the work I completed for my thesis was that we managed to find the right mathematical way to describe a complex problem, which essentially made … Continue reading PhD Mathematics
Introduction
Over the years I have written quite a few posts on finance and financial mathematics, based on the work I was doing at the time as a derivatives quant within various investment banks. Some of my post popular posts have been: How to calculate option prices in your head How to understand fixed-income trader jargon … Continue reading Introduction
Speaking with a rates trader: cents or bips?
As everyone knows: one basis point is 0.01%, and one cent is 0.01% too. The difference is that we typically use cents when we refer to an upfront price, and use bips when we refer to a rate (in a swap for example). So a trader may ask: "what is 3 bps worth upfront?" which … Continue reading Speaking with a rates trader: cents or bips?
Fermat's Last Spreadsheet 