The first two chapters of this series have taken us through a fascinating journey into the FX derivatives jungle (or at least I find that fascinating, but I'm probably biased). However, there is still one giant missing piece of the entire "buy-side,sell-side, and volatility dynamic" puzzle, and that's "how does…

We continue our journey into the FX derivatives jungle exactly where we left off (if you are just joining, feel free to read Part I). …

The options space is a fascinating world in which sophisticated calculus, probability theory, and other quantitative disciplines come together to help us solve one simple question: “what is the fair value of product X on some underlying asset, given few input parameters?” Clearly, we know how to answer that question…

“Our greatest glory is not in never falling, but in rising every time we fall” — Confucius It is said that history doesn’t repeat itself but often rhymes, and I think this captures the current state of financial markets. Investors nowadays are debating whether we are reliving the dot.com bubble…

Any option trader who focuses on volatility trading will tell you that the price of volatility is the single-most-important factor in trading volatility. That might sound intuitive to us, but it wasn't too long ago when implied volatility was merely a plug-number when we wanted to price an option (or…

Market neutral strategies account for a significant part of quant-based strategies. Just think about your typical equity long-short/pair trading/vol relative-value. All these strategies find their edge in detecting value (or mispricing) in idiosyncratic risk while eliminating the market beta. While there’s more than one way to skin a cat (or…

Let’s talk securitization…. Anyone who was around during the roaring 2000s probably remembers the hype in Credit Derivatives (namely in MBS and CDO). These were the hottest commodity in town, and everybody and their mother wanted a piece of the action. These products were, essentially, a type of securitization. Securitization, without going too…

So we continue our journey down the rabbit hole of volatility surface and vega risk exactly where we left off last time (if you want to refresh your memory, hop back to Part I ). As we recall, our theoretical options book took a massive hit after the sudden drop…

The topic of Implied Volatility Modeling has long been at the center of derivatives research. Ever since criticism regarding Black & Scholes’s “flat volatility across strikes/maturities” assumption started gaining traction (somewhere around the late 70's/early ’80s), volatility practitioners have tried to come up with ways to remedy that assumption that…