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Credit default swap (CDS) Posted by: bionicturtledotcom
Video duration: 357 seconds A CDS is a bilateral contract between two counterparties. The protection buyer is buying insurance: he/she pays premiums in exchange for a payoff in case there is a CREDIT EVENT (a trigger) Related: excel, finance, quant |
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Metallgesellschaft case on hedging disasters Posted by: bionicturtledotcom
Video duration: 379 seconds In MG, the underlyings were short positions in long-term forward contracts to deliver oil. The hedge was a stack-and-roll hedge: long positions in short-term futures contracts that were rolled over consecutively. The strategy depended on the continuation of (i) stable or gently increasing spot oil prices and (ii) backwardation Related: backwardation, case, contango, hedge, risk, study |
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Intro to Linear Regression Posted by: bionicturtledotcom
Video duration: 314 seconds A really brief introduction to the "best fit" line through X:Y data. Related: finance, quant |
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Regression #1: Sample regression function (SRF) Posted by: bionicturtledotcom
Video duration: 450 seconds The population is unobserved. We draw samples and make inferences based on the samples. Each sample has a sample regression function (SRF). Related: econometrics, finance, quant, regression, statistics |
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Collateralized debt obligation (Balance Sheet CDO) Posted by: bionicturtledotcom
Video duration: 456 seconds A balance sheet CDO transfers credit risk from the bank (originator) to investors. A key aspect of a CDO is that investors have different (tranched) securities. Related: excel, finance, quant |
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Regression #2: Ordinary Least Squares (OLS) Posted by: bionicturtledotcom
Video duration: 568 seconds OLS minimizes the residual sum of squares (RSS). RSS is the sum of each squared residual (residual = the observed Y minus the predicted "on the line" Y). Also, about the OLS: the average residual is always zero, and the line passes through the point (average X, average Y) Related: econometrics, finance, quant, regression, statistics |
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Correlation & Covariance Posted by: bionicturtledotcom
Video duration: 593 seconds Covariance is a measure of relationship (or co-movement) between two variables. Correlation is just the translation of covariance into a UNITLESS measure that we can understand (-1.0 to 1.0) Related: finance, quant |
![Student\](http://img.youtube.com/vi/pqtG1vXg_f8/2.jpg "Student\") |
Student's t distribution Posted by: bionicturtledotcom
Video duration: 512 seconds The small sample is a 10-day series of Google's daily periodic returns. The question is, with 95% confidence, what is the true (population) average return? This is the essence of statistics, based on sample statistics (sample mean, sample variance) we are trying to infer population parameters (population mean). Related: excel, finance, quant |
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Contango & backwardation in commodity forward markets Posted by: bionicturtledotcom
Video duration: 467 seconds Contango and backwardation are about the relationship between the spot and forward price. If Forward is greater than Spot, it's contango (upward sloping forward curve). If Forward is less than Spot, it's backwardation (inverted forward curve). The "normal" prefix refers to relationship to expected future spot price and is harder to figure. Related: commodities, derivatives, finance |
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How to value an interest rate swap Posted by: bionicturtledotcom
Video duration: 554 seconds At inception, the value of the swap is zero or nearly zero. Subsequently, the value of the swap will differ from zero. Under this approach, we simply treat the swap as two bonds: a fixed-coupon bond and a floating-coupon bond. The value of the swap is difference between the two. Related: derivatives, finance, interest, rate, swaps |
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Basis risk is the mother of all derivatives risk Posted by: bionicturtledotcom
Video duration: 559 seconds The basis is the difference between the spot and futures price. Basis risk attaches to all derivatives. Related: commodity, derivatives, finance, hedge |
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Coefficient of determination (r-squared) Posted by: bionicturtledotcom
Video duration: 590 seconds In a linear regression, you often see the R-squared quoted. To explain the R-squared (coefficient of determination), I compare it to the standard error of estimate (a measure of the line's accuracy) and the correlation (the square root of the coefficient of determination). All three, loosely speaking, are measures of the line's fit to the data Related: excel, finance, quant |
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Central limit theorem Posted by: bionicturtledotcom
Video duration: 529 seconds The CLT says the sample mean will be normally distributed regardless of the population distribution; it's power is uncanny. Related: financel, quant |
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Synthetic collateralized debt obligation (synthetic CDO) Posted by: bionicturtledotcom
Video duration: 479 seconds The key difference between a cash and synthetic CDO is: instead of selling the reference portfolio (loans), the originator (bank) purchases credit protection with credit default swaps (CDS) Related: finance, quant |
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Using Excel to calculate Black-Scholes-Merton option price Posted by: bionicturtledotcom
Video duration: 500 seconds This is Black-Scholes for a European-style call option. You can download the XLS at my site @ www.bionicturtle.com Related: derivatives, finance, options, stock |
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Stock Option Greeks Posted by: bionicturtledotcom
Video duration: 515 seconds This is a brief review of the option Greeks. They are sensitivities: what is the change in option price with respect to [stock price | volatility | rate | term]. Delta: change in option price with respect to stock pric. Gamma: change in delta with respect to stock price. Vega: with respect to volatility. Rho: with respect to rate. Theta: with respect to term Related: derivatives, excel, finance, options, stock |
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GARCH(1,1) to estimate volatility Posted by: bionicturtledotcom
Video duration: 471 seconds GARCH(1,1) estimates volatility in a similar way to EWMA (i.e., by conditioning on new information) EXCEPT it adds a term for mean reversion: it says the series is "sticky" or somewhat persistent to a long-run average Related: excel, finance, quant |
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F distribution Posted by: bionicturtledotcom
Video duration: 497 seconds The F distribution is used for two sample variances: to test the hypothesis that the two population variances are the same; e.g., is Yahoo's population variance different from Google's, given our sample size? Related: excel, finance, quant |
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Intro to Quant Finance: Value at Risk (VaR) Posted by: bionicturtledotcom
Video duration: 588 seconds The basic approach to VaR is delta normal: a scaled standard deviation Related: excel, finance, quant, quantitative |
![Bayes\](http://img.youtube.com/vi/pPTLK5hFGnQ/2.jpg "Bayes\") |
Bayes' Formula Posted by: bionicturtledotcom
Video duration: 397 seconds Bayes' Theorem formulas an intuitive idea: we adjust our perspective (the probability set) given new, relevant information. Formally, Bayes' Theorem helps us move from an unconditional probability (what are the odds the economy will grow?) to a conditional probability (given new evidence, what are the odds the economy will grow?) Related: finance, quant |
