Sanjiv R. Das Volume 9, Number 2, Second Quarter 2011 While the use of Monte Carlo methods is well established for pricing derivatives, this paper focuses on a random-lattice approach, also known in the literature as the stochastic-mesh method. The method is reviewed here. We show that the method may be refined with an ad-hoc… Read more
Surveys and Crossovers
SURVEYS AND CROSSOVERS: Implementing Option Pricing Models Using Python and Cython
Sanjiv R. Das and Brian Granger Volume 8, Number 4, Fourth Quarter 2010 In this article we propose a new approach for implementing option pricing models in finance. Financial engineers typically prototype such models in an interactive language (such as Matlab) and then use a compiled language such as C/C++ for production systems. Code is… Read more
CROSSOVERS & SURVEYS – The Libor/SABR Market Models: A Critical Review
Sanjay K. Nawalkha Volume 8, Number 3, Third Quarter 2010 This paper reviews the LIBOR market model (LMM) and the LMM-SABR model. While a plethora of interest rate models, such as fundamental models, single-plus models, double-plus models, and triple-plus models, can be used for valuation of plain vanilla derivatives, only a few models such as… Read more
SURVEYS AND CROSSOVERS: Financial Applications with Parallel R
Sanjiv R. Das and Brian Granger Volume 7, Number 4, Fourth Quarter 2009 The use of statistical packages in finance has two functions. One, econometric analysis of large volumes of data, and two, programming financial models. A popular package for these purposes is R. In this article we will examine two canonical applications of parallel… Read more
SURVEYS: Managing Interest Rate Risk: The Next Challenge?
Sanjay K. Nawalkha and Gloria M. Soto Volume 7, Number 3, Third Quarter 2009 Are the managers of financial institutions ready for the small but increasingly significant risk of inflation in the near future, due to the unprecedented fiscal and monetary responses of the US government to prevent an economic collapse? This paper addresses this… Read more
SURVEYS AND CROSSOVERS: Dealing With Dimension: Option Pricing on Factor Trees
Sanjiv R. Das and Brian Granger Volume 7, Number 2, Second Quarter 2009 We present a scheme for pricing derivatives on M assets on K -factor recombining trees with N periods. The computational complexity of these trees is O(NK +1), i.e. polynomial in N, making it possible to price a wide range of derivatives without… Read more
SURVEY OF THE LITERATURE: The Housing Bubble and Resulting Mortgage Crisis
Robert Hendershott, Patric Hendershott and James Shilling Volume 7, Number 1, First Quarter 2009 In the late 1990s, United States house prices began a long boom that peaked in mid 2006. The subsequent reversal of the housing boom has spawned a major crisis in the credit markets. This paper reviews the financial developments that stimulated… Read more
SURVEY OF THE LITERATURE: Credit Default Swap Spreads
Sanjiv R. Das and Paul Hanouna Volume 4, Number 3, Third Quarter 2006 We review the literature on credit default swap spreads, which are fast replacing bond spreads as source data for analyzing and predicting credit risk. We review results that examine the basis, i.e. the difference between bond and CDS spreads, enabling the extraction… Read more
SURVEY OF THE LITERATURE: Power Laws
Sanjiv R. Das and Jacob Sisk Volume 3, Number 3, Third Quarter 2005 We provide a brief survey of two areas in finance in which power laws may play an important role—one, in better describing the tails of return distributions; and two, in market microstructure modeling. While the existing literature in finance is not extensive… Read more
SURVEY OF THE LITERATURE: Genetic Algorithms
Sanjiv R. Das Volume 3, Number 2, Second Quarter 2005 View PDF… Read more