Clik here to view.
What happens to Portfolio Protection (esp. CPPI) under Transaction Costs and...
One of the most popular portfolio protection trading strategies is the Constant Proportion Portfolio Insurance (CPPI). This strategy maximizes the exposure in stock at each rebalancing time while...
View ArticleClik here to view.
What would be the effect of the proposed transaction tax on Life Insurance...
Under the current stress of the financial crisis, governments all over Europe discuss the introduction of a transaction tax for financial instruments. Especially, the German and French government...
View ArticleClik here to view.
What is the Difference Between Risk-Neutral Valuation and Real-World Valuation?
In option pricing, two technical terms often create confusion. One term is “risk-neutral” and the other “real-word”. You hear these terms in the context of option pricing, backtesting, risk management...
View ArticleClik here to view.
Sell in May and Go Away But Remember to Come Back in September. Really?
Sell in May and go away is an old wisdom which is interesting to analyze. And the continuation “Remember to come back in September” completes this wisdom to a real trading strategy. This strategy is...
View ArticleClik here to view.
The Easiest Back-Testing of Trading Strategies: MS Excel Pivot Table!
Before using specialized tools for back-testing I propose that one tries the MS Excel Pivot Table first. The pivot table tool is great for inspection, filtering and analyzing large data sets. In this...
View ArticleClik here to view.
Feedback: What is the Effect of Hedging Options on the Underlying?
More and more investors insist on guarantees on the investments. Theses investments are often created using options or dynamic strategies like CPPI. Recently, these strategies were made available in...
View ArticleClik here to view.
What is Model Risk and What Can I Do About it?
Model risk is the risk that the market models in investment banking do not properly reflect the reality. This risk is often neglected or simply ignored. But, it is one of the most important risks as we...
View ArticleClik here to view.
What is Historical Volatility and Why Do We Need Implied Volatilities?
Looking at financial instruments, one often finds the term implied volatility. In this post, we want to describe what it is and what you can do with it. We start refreshing the term historical...
View ArticleClik here to view.
Early Exercise: Curse or Blessing
Many financial contracts come with the right of exercising a right prematurely. Such early exercise rights are a clear advantage for the option holder. But, these rights create optimal stopping...
View ArticleClik here to view.
Historical performance lies! Beware of survivor bias.
Often you find studies how well a specific fund or trading strategy has performed. You must be aware of the fact that basically all studies based on historical data lie – or at least do not tell the...
View ArticleClik here to view.
VDAX revisited – Implied volatility return vs. Index Return
Last time we looked at implied volatility, we found a close relationship between historical volatility and implied volatility. This time, we want to look at the relative changes of DAX and VDAX and...
View ArticleClik here to view.
Mega Trend Climate Change
The most dominating factor in the long run for the economy is climate change. If we do not take radical action, in 30 years, the world will lose about half a trillion US$ per year due to climate...
View Article