Published in The Quant Journey·May 17Member-onlyPricing Barrier Options using Monte Carlo Simulation in PythonModelling Exotic Options When modelling exotic options, one has to make a fundamental decision very early in the process: should you model the option in a continuous-time, Black-Scholes type of model, or in a binomial model. Generally many exotic options are initially priced via a binomial model, and then at some point traders…Finance6 min read

Published in The Quant Journey·May 16Member-onlyMonte Carlo Methods for Risk Management: CVA and the Merton Model in Python1. Exposure to Default and CVA Credit Valuation Adjustment, or exposure, is what, at any time t, you are at risk of losing, if the counterparty were to default. It is the higher of the value of the portfolio and 0, i.e.Finance8 min read

Published in The Quant Journey·May 16Member-onlyMonte Carlo Methods for Risk Management: VaR Estimation in Python1. Value at Risk Risk Metrics A technique for quantifying the risk in a portfolio is known as a risk metric. This gives us a way of numerically describing the amount of uncertainty in that portfolio. Examples: Volatility/Variance and Correlation which give an idea of the extent to which a portfolio’s value could decrease and how…Finance9 min read

Published in The Quant Journey·Apr 24Member-onlyMonte Carlo Simulation for Black-Scholes Option PricingIn this article we will look at applying Monte Carlo simulation to price both a European Call and Put Option, following the Black-Scholes Market Model using Risk-Neutral Pricing. The Black-Scholes Market Model Risk-Neutral Measure Call Option Pricing and Monte Carlo Simulation Put Option Pricing and Monte Carlo Simulation Put-Call Parity 1. The Black-Scholes Market Model …Finance7 min read

Published in The Quant Journey·Apr 23Member-onlyMonte Carlo Simulation Theory and Applications in PythonThe Monte Carlo Simulation is a numerical analysis technique aimed at estimating the possible outcomes of a certain random event. It is a very powerful method of evaluating integrals where there are no known solutions. The main idea behind this simulation is that the results are computed based on repeated…Finance5 min read

Published in The Quant Journey·Feb 19Member-onlyA Comprehensive Guide to The Mathematics of Quantum MechanicsThe mathematical formulations of quantum mechanics are those mathematical formalisms that permit a rigorous description of quantum mechanics. This mathematical formalism uses mainly a part of functional analysis, especially Hilbert spaces, which are a kind of linear space. We will explore the fundamental mathematical concepts and properties needed to understand…Quantum Mechanics16 min read

Published in The Quant Journey·Feb 17Member-onlyFive-Factor Asset Pricing Model AnalysisA Regression based analysis of the Five-Factor Asset Pricing Model Using the dataset from Eugene Fama and Kenneth French’s 2013 paper “A Five-Factor Asset Pricing Model”,Finance4 min read

Published in The Quant Journey·Feb 16Member-onlyEffects of Changes in Oil Rents and Broad Money on an AS-AD Model from 1970 to 2007Using data from a set of 5 different countries graph the effects of changes in Oil rents and Broad money on an AS-AD Model starting at equilibrium starting in 1970 and ending in 2007. As much data is missing in these records, Using this data, and controlling for each country…Finance4 min read

Published in The Quant Journey·Feb 16Member-onlyThe Global Financial Crisis of 2008: Regulations Explained ComputationallyDissecting the most impactful financial crisis in history, how monetary policy influenced the recovery from the crisis, and analyzing Quantitative Easing under the lease of statistical analysis. 1. The Global Financial Crisis of 2008 Explained The Roots The global financial crisis has had its roots far before 2008, but it wasn’t until September 2008 that its effects were heard throughout…Finance15 min read

Published in The Quant Journey·Feb 16Member-onlyHedge Fund Failures: A Computational Analysis of the Sources of RiskIt is imperative to understand the role of Hedge Funds in the financial sector today, and how they have, over time, played significant roles in the collapses of some major companies and financial crises. 1. Principles and History of Hedge Funds Hedging refers to techniques employed to mitigate risk, usually by taking positions whose values move inversely…Finance13 min read