Derivatives -- the View from the Trenches

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Outline Background The first fundamental theorem of derivatives trading The second fundamental theorem of derivatives trading The difference between P and Q Arbitrage and efficiency Model philosophy Models that work at work Conclusion 2
My Life as a Quant CV: - 1997: PhD, Department of Operations Research, Institute of Mathematics, Aarhus University. - 1997-1997: Senior Analyst, Bear Stearns, London. - 1997-2000: Vice President, Quantitative Research Department, General Re Financial Products, London. - 2000-2002: Principal, Head of Quantitative Research at Bank of America, London. - 2002-present: Head of Product Development Group in Nordea Markets, Copenhagen. Job description - Develop and implement pricing and hedging models for exotic derivatives. - Including: interest rates, credit derivatives, equity, foreign exchange and hybrids. 3
Page 1: Derivatives -- the View from the Tr
Page 5 and 6: The First Fundamental Theorem of De
Page 7 and 8: Theorem 1 and Option Markets Black
Page 9 and 10: Theorem 1 and Models Theorem 1 ext
Page 11 and 12: Theorem 1 and Technical Results A
Page 13 and 14: Theorem 2: The Gospel of the Jump
Page 15 and 16: But in essence the strategies invol
Page 17 and 18: Theorem 2 and the Equity Volatility
Page 19 and 20: So in front of you, you have an opt
Page 21 and 22: The Difference between P and Q and
Page 23 and 24: Model Philosophy Keep it simple --
Page 25 and 26: Foreign exchange - Black-Scholes wi
Page 27 and 28: An Interest Rate Model at Work in J

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