1. 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.

1. 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…

In 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 …

The 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…

The 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…

A 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”,

Using 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…

Dissecting 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…

It 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…