Hi M, kind of liked this post......
Nice work if you can get it... huh? -g- the Asset creation secret is way way out of the bag, who needs to own a central bank when you they are engaging in Nuclear Phynance in the City? (London)
nuclearphynance.com
think about it, they are idlely chatting about Convexity Adjustments for for Monte Carlo FX forwards...
nuclearphynance.com
Posted: 2007-06-27 12:59
As a complete noob, I've been asked to determine the volatility of FX rates in a multi-asset MC model. Could someone explain to me (a little) the mechanics behind the forward measure adjustment (i.e. discounting the FX forward on an MC path by the stochastic discount factor on that path, then averaging and dividing by the ~average discount factor to get the proper FX forward from the model.)
Also, if I am using the forward above to back out the implied vol from a cross-currency quanto option, is this vol the same as the FX vol that I'm looking for?
Kenshin_1
Total Posts: 1
Joined: Sep 2007
Posted: 2007-11-07 17:13
Hi,
The thing is when you describe your model u have to model the dynamic of the 2 yield (Let s suppose a HJM approach)
dB_d/B_d = r_d dt +sigma1 dW_d
dB_f/B_f = r_f dt +sigma2 dW_f
dS/S =(r_d-r_f )dt + gamma dW_S
so first the Vol of the Fwd FX rate will be some thing like
Vol^2 = gamma dW_S ^+ sigma1 dW_d^2 +sigma2 dW_f^2
if no correlation !!!!
and the second adjustement will be on the B_f drift and is such as B_f*S/B_d will be a martingal under the Fwd measue.
S.H
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but to answer your question 1997 and 1998, to me seemed more like teenagers that had gotten of Dad's top of the line corvette and where tooling down the interstate at 145 mph, could get kind of messy, all fun and games 'til someone shoots out their eye.. etc.
Our present situation personally reminds me more of the Manhattan Project Physicists that were preparing to watch the first fisson based Nuclear Reaction out at Los Alamos and some of them were concerned that the explosion might ignite the atmosphere and the entire planet would be roasted. I hope I'm way too pessemistic on this front.
I actually believe there is a solution to this but it's going ot require a new Global Financial Agency creation and the mandatory recalling of a very great amount of this securitized, sliced up and then repacked tranches of debt. And in the stuff in it will have to be marked down with manadatory GAAP and Tax adjusted numbers agreed upon by International Accounting Standards Board (IASB) and the United States Financial Accounting Standards Board (FASB);
as well as FED, ECB, BOE, JCB rest of the G-20 etc. and the Taxing Authority of those countries as well.
The Panic of 1907 established the need for the creation of the Federal Reserve and this credit crisis / nascent financial panic will undoubtedly auger a consenses for a New International Entity with Clount to unwind this mess.
hhhmmmm... Paulson.... darn good thing he had already been to China on Business 70 times PRIOR to becoming Secretary of the Treasury, I'd love to be the proverbial fly on the wall watching Paulson, Bernake and Hu and the Chinese counterparts holding discussions. Might as well have Jack Nicholson over there telling them "no tiki no laundry".
and a parting shot, what about PetroChina.... running up to the first Global Trillion dollar market cap a few weeks ago.
Now that's nuclear power for you!!!! Think about it, it was 106 years ago when JP Morgan arranged the first Billion dollar market capitaliztion stock with the Roll up of and IPO or US steel in 1901. PetroChina did not even have to go out and acquire materially more assets to witness their market cap going from 200 billion up to 1 Trillion.
Nice work if you can get it.....
John |
