FRTB SA Risk Factor Mapping
The primary function of a risk factor is the quantification of market risk associated with a market variable such as…
Market, Risk and Reference Data
Volatility Surface Calibration
Flattening the residual mountain. The more volatile the price underlying an option, the better its chance of finishing ITM, and…
Bootstrapping vs. Multi Curve
Valuing derivatives is a two-step process. Step 1 forecasts forward rates. Step 2 discounts them to PV using a curve…
Neural Networks: Pricing Bermudan Swaptions
The future CFs of a Bermudan swaption trade are determined by 1) the T&Cs contained in the trade’s term sheet…
Interest Rate Risk in the Banking Book (IRRBB)
The profitability of a bank is determined by the behaviour of its future expected cash flows. The BB contains held-to-maturity…
Fitting Risk Factors for FX Heston
Risk factors used in derivative pricing models come in two forms: observable and fitted. On the RH side of the…
Cap Valuation
A company borrows $100m from a bank. It’s a floating rate loan tied to SOFR, the risk-free rate (RFR) index…
Counterparty Credit Risk
Counterparty credit risk is a fusion of market risk with credit risk. The unrealised P&L of an interest rate derivative…
Part 1: Nature’s Natural Number
If you are lucky enough to get 100% interest on an investment of $1 over 1 yr, you will get…