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A short course of lectures
«Frequently Asked Questions in Quantitative Finance»





Diff (erential) swap American option Binary option Structured products Other terms? Linear or non-linear The Commonest Mistakes in Quantitative Finance: A Dozen Basic Lessons in Commonsense for Quants and Risk Managers and the Traders Who Rely on ThemChooser option Pirate puzzle Number of dimensions Dimensionality FrustrationWhat is Ito's Lemma?Series solutions Basket option Normal distribution Lesson 11: Too Much PrecisionDecision features Which Numerical Method should I Use and When?Market maker Avellaneda and Paras Find the volatilityRead your CV How is Risk Defined in Mathematical Terms?Be honest kgof berries Name Risk neutral TurnoverRussian rouletteHimalayan option Popular Quant BooksGamma hedging Inverse floater Show that you can do things Rainbow optionFixed IncomeTaylor SeriesRange note The V term Functional form of coefficients Probabilistic Thorp Ones and zeros How Do I Dynamically Hedge?The underlying is lognormally distributed Four switches and a lightbulb Airforce OnePreface to the First EditionBermudan option Balloon option Last job first Straddle Skew Treynor ratio EfficiencyCoupe option Hedging and the Partial Differential EquationPrefaceBoundary/final conditions s Cheyette, Barrett, Moore and Wilmott Poisson* HYPER option Quants' salariesWhy Does Risk-Neutral Valuation Work?Credit markets Swaptions Programme of studyApply for the right job Focus Asian option Programme of studyWhat is a Free-Boundary Problem and What is the Optimal-Stopping Time for an American Option?Inverse normal What is a Coherent Risk Measure and What are its Properties?Lookback option Smile Sums of uniform random variables Lesson 1: Lack of DiversificationPonzi Schemes, Auditors, Regulators, Credit Ratings, and Other ScamsThe Oracle at Delphi CreditVolatility This is No Longer FunnyEmbedded decisions Hull & White (1987) Gender ratio Rho Interests and hobbies SABR Convertible bond PDE Can I optimize my hedging when there are transaction costs? Vega Unberstanb the process Make eye contact Passport option Advanced Modelling in finance Using Excel and VBA by Mary Jackson and Mike StauntonBrennan & Schwartz Implied Finite difference Mobile phone interviews The backward equationFonts and layout Uniform What is Volatility?Getting the message across What are Copulas and How are they Used in Quantitative Finance?What is Jensen's Inequality and What is its Role in Finance?Covering a chessboard with dominoesHanging a picture Monte Carlo Discrimination methods Extendible option/swap Convertible Richardson Bonus Lesson 13: The Binomial Method is RubbishCQF Stochastic volatilityThe Most Popular Probability Distributions and Their Uses in Finance What is Cointegration?Student's t Snowflake What is a Jump-Diffusion Model and How does it Affect Option Values?Barrier option Writing a CVBlack—Scholes for AccountantsThe Monty Hall problemTheta Li What are the Most Useful Performance Measures?Quanto Time dependence What are Low-Discrepancy Numbers?Magicians and MathematiciansBermudan swaption PDF Path dependence The doorsCox, Injersoll & Ross What is Meant by the 'Value' of a Contract?Be punctual Future Asymptotic analysis Annual returnsAccrual Lesson 12: Too Much ComplexityCredit Derivatives Pricing Models by Philipp SchonbucherStatic hedging Duration Parisian option What is the Kelly Criterion?EfficiencyWhat is a Wiener Process/Brownian Motion and What are its Uses in Finance?CDS Mortgage Backed Security (MBS) Margin hedging Volatility is constant What is Marking to Market and How Does it Affect Risk Management in Derivatives Trading?Dice gameWhat is the Best-Kept Secret in Quantitative Finance?Ages of three childrenNumerical integrationSuperhedging Name and Shame in Our New Blame Game!Monte Carlo methodsSimulations Speed Russian rouletteWhat is Meant by 'Complete' and 'Incomplete' Markets?Einstein's brainteaser Intuition Why is calibration unstable?What is GARCH?Hedging is continuous Lesson 8: Reliance on Closed-Form SolutionsCompensationWhat is Dispersion Trading?Ages of three children Swap Perfume and aftershave Can I use Real Probabilities to Price Derivatives?Discrete/Continuous Hit-and-run taxi Ultras Shadow greeks Vasicek Normal or Gaussian Returns are normally distributed Cauchy Family membersFour switches and a lightbulbMean reversion Sharpe, Lintner and Mossin Asking questions Set traps s Samuelson BrainteasersResults and Ideas: Two Classical PutdownsWhat is the Volatility Smile?Questions for the interviewerBalls in a bagThe Quantitative Finance TimelineLesson 10: CalibrationRisk Gumbel Volatility ArbitrageCliquet option Delta ExamplesSpot rate modelsSABRWhat you need to proveLesson9: Valuation is Not LinearVasicek Make sure you can be contacted CMS s Sobol', Faure, Hammersley, Haselgrove and Halton... What is the Capital Asset Pricing Model?Number of dimensions The spot rate and forward rates Credit Default Swap (CDS) Digital option Strangle Bachelier Second-derivative terms What is the Finite-Difference Method?Two-factor modelsReverse repo Another one about birthdays What is Option Adjusted Spread?Sobol' The Financial Modellers' ManifestoQuizC++ Design Patterns and Derivatives Pricing by Mark JoshiWhat is Modern Portfolio Theory?The Black-Scholes Formulae and the GreeksWhat is Asymptotic Analysis and How is it Used in Financial Modelling?Hybrid Digital Biased coins Approximations Index amortizing rate swap Pricing derivatives Heath, Jarrow and Morton Urban planningCloser to the edge or the centre? Dupire, Rubinstein, Derman and Kani The forward equationCalibration Continuous-Time Limit of the Binomial ModelLesson 3:Jensen's Inequality ArbitrajeThere are no transaction costs Deterministic models Forward The Most Popular Search Words and Phrases on Wilmott.comGARCH-diffusion What are the Greeks?BookwormBe true to yourself Pirate puzzleRead the job specification Default probability What is Bootstrapping using Discount Factors?Bond options Aircraft armourGender ratioGamma Option Valuation under Stochastic Volatility by Alan LewisLIBOR Two headsBrace, Gatarek and Musiela Stochastic Miss MoneypennyTransactions costs Jump diffusionCompensation Cap kg of berriesWhat is the LIBOR Market Model and its Principal Applications in Finance?A Diffusion EquationCall option Do not sound as if you work for Accenture Preface to the Second EditionWhat are the Bastard Greeks?Swaption Interview overlap Callable Paul Wilmott on Quantitative Finance, Second Edition by Paul WilmottConvexity Quanto The Oracle at DelphiAsymptotic analysis Two heads Sharpe ratio Bookworm Uncertain volatility Copula Mellin TransformCap MORE HEDGE FUNDS WILL COLLAPSE What are the Forward and Backward Equations?Be polite Asset swap Sleep regularly, sleep often Pass through What is Maximum Likelihood Estimation?FAQs Knock-in/out option Fama Swap Ho & Lee Compound option Paul Wilmott Introduces Quantitative Finance, Second Edition by Paul WilmottFind out more about the job What is Value at Risk and How is it Used?Ho and Lee The order of an option Delta hedging Brown Markowitz Gamma TOO MUCH MONEY WILL GO INTO TOO FEW PRODUCTS Base correlation Hagan, Kumar, Lesniewski and Woodward Lesson 5: CorrelationWhat is Girsanov's Theorem, and Why is it Important in Finance?Why? SnowflakeWhat are the Stupidest Things People have Said about Risk Neutrality?Science in Finance I Revisited: Supply and Demand, and Spoon BendingRISK MANAGEMENT WILL FAIL How big is my hedging error? What is the Central Limit Theorem and What are its Implications for Finance?Heath, Jarrow & MortonThe lognormal random walkBreak/Cancellable forward What is Extreme Value Theory?What is CrashMetrics?What is the Market Price of Risk?Things to Look Out For in Exotic ContractsTurnover Hull & White Floor Options, Futures, and Other Derivatives by John HullAnd Now a Brief Unofficial History!Collateralized Debt Obligation squared (CDO2) Cox, Ross and Rubinstein CDO Can I Reverse Engineer a Partial Differential Equation to get at the Model and Contract?Poisson processes EsotericaAircraft armour Floating Rate Note (FRN) Basket Weibull Duration Local TimeAirforce One Finite-difference methodsGARCH Term independent of V Ants on a circle Variance swap Vega hedging Schonbucher's stochastic implied volatility Swaptions Variance swap The AnswersUrban planning Lesson 7: FeedbackConvexity Fong & Vasicek Annual returns Black, Scholes and Merton Science in Finance II: '... ists'What People Get WrongThe Monty Hall problem Neatness is good The yield to maturity (YTM) or internal rate of return (IRR) The market price of risk as a random factor The QuestionsMultiple CVs Heard on the Street by Timothy CrackGet it checked Dispersion American option Science in Finance IX: In Defence of Black, Scholes and MertonHanging a pictureThere are no arbitrage opportunities Lesson 6: Reliance on Continuous Hedging (Arguments)Science in Finance IV: The Feedback EffectOnes and zerosMiss Moneypenny Barrier option Equity, Foreign Exchange and CommoditiesTwo thirds of the averageCollateralized Mortgage Obligation (CMO) Ratchet Matching birthdaysIts AppearanceForward-start option Expected loss Parameters as VariablesLesson 2: Supply and DemandContingent premium option Why is the Lognormal Distribution Important?Zeroth law of holes Programme of studyAugust 2007 quantitative finance in disrepute MBS Vomma or Volga Collateralized Debt Obligation (CDO) What is the Difference between a Quant and an Actuary?Hull & White Linear or non-linear InterviewsPaul & Dominic What is Put-Call Parity?Sortino ratio Beta VOLATILITY WILL INCREASE ENORMOUSLY AT TIMES FOR NO ECONOMIC REASON Twelve Different Ways to Derive Black-ScholesCORRELATION PRODUCTS WILL BLOW UP DRAMATICALLY Muddy facesQuantlib Crash (Platinum) hedging Hawai'ian option Green's functions Economics Makes My Brain HurtBasis swap Delta Can I optimize my hedge? CONVEXITY WILL BE MISSED Vanna Jewellery Brainteasers What is Calibration?Levy Boyle What is Monte Carlo Simulation?Other DerivationsChi square Good clothes Be prepared Exponential Collateralized Debt Obligation (ECDO) Ants on a circleWhy do Quants like Closed-Form Solutions?First-derivative terms Black 1976Multi-dimensional lognormal random walksCoherent measures Balls in a bag The Concepts and Practice of Mathematical Finance by Mark JoshiHow much will transaction costs reduce my profit? Closer to the edge or the centre?Brace, Gatarek & MusielaCash flows What are the Different Types of Mathematics Found in Quantitative Finance?Making a difference Modigliani-Modigliani measure Econometric models Minimum and maximum correlation Change of NumeraireHedge CFA Principles of Financial Engineering by Salih NeftciLogistic Deterministic Fast drift and high volatility in stochastic volatility models Pareto Hit-and-run taxiBuzzwords Another one about birthdaysFinding banks Caps and floors The Same Old Same OldModels and EquationsPrices as expectationsEfficiencyCovering letter Put option Monte Carlo Methods in Finance by Peter JackelTwo thirds of the average Barbarians Dates How? Repo MartingalesThe Complete Guide to Option Pricing Formulas by Espen Gaarder HaugMatching birthdays Common ContractsEssaysWhy Hedge?LIBOR-in-arrears swap Science in Finance VII: Risk Management — What is the Point?Asset swap Fixed-income markets Einstein How Good is the Assumption of Normal Distributions for Financial Returns?Longstaff & Schwartz STRIPS GOOD SALESMEN WILL HOODWINK SMART PEOPLE What is the Black—Scholes Equation?ManifestoCorrelation Sums of uniform random variablesGamma What is a Poisson Process and What are its Uses in Finance?Show some market insight Correlation markets Kissing frogs Black & Karasinski What is a Utility Function and How is it Used?Interest rate swap Equity, FX and commodity markets Be confident CAPMRegression The doors Make-up Exotic Covering a chessboard with dominoes Paul & Dominic's Guide to Getting a Quant JobSABR What? It Is and It Isn'tExponentialDice game What is Serial Autocorrelation and Does it Have a Role in Derivatives?Minimum and maximum correlationPOLITICIANS AND GOVERNMENTS WILL REMAIN COMPLETELY IN THE DARK THERE WILL BE MORE ROQUE TRADERS Asian option Exploring portfolio statistics Decision features Structural modelsAttribution Arbitrage Biased coinsThere are no costs associated with borrowing stock for going short What is the Difference Between the Equilibrium Approach and the No-Arbitrage Approach to Modelling?Colours What is the Efficient Markets Hypothesis?Wiener Functional form of coefficients Constant Maturity Swap (CMS) Stochastic volatility What is Arbitrage?-81 Harrison, Kreps and Pliska Show you can do things Lognormal Utility TheoryOutperformance option Forward Rate Agreement (FRA) Muddy faces Lesson 4: Sensitivity to ParametersWhat is Arbitrage Pricing Theory?Reduced formOrnstein-Uhlenbeck process Einftein'f brainteaserScience in Finance VI: True Sensitivities, CDOs and CorrelationsColour Option pricesMerton, again Information ratio Square-root model/Heston (1993) Total Return Swap (TRS) Yield curve Laplace What is the correct delta? Boundary/final conditions How Robust is the Black-Scholes Model?/2 model
 
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