# Category Archives: Sales & Trading Interview Guide

## Implied volatility and hedge P&L. Mapping P&L distributions.

Implied volatility and relative hedging P&L. Four scenarios to set things right. We go back to a simple world where implied volatility can take four possible values. 10%, 20%, 30% and 40%. As a trading desk we can write and sell options at each of

## Vega, Volga and Vanna. The option volatility Greeks.

Vega, Volga and Vanna. The option volatility Greeks. What is Vega? Vega is the change in the value of the option with respect to change in volatility. Within the Greeks Vega’s importance rises given how misunderstood the behaviour of volatility is and the impact changes

## Hedging Vega and Gamma exposure. Lesson Five

Hedging portfolio Vega and Gamma using solver. Lesson Five For our portfolio model we need an objective function that allows us to minimize the cumulative Greek gap across maturity buckets with respect to Vega and Gamma between the short positions and the proposed hedge portfolio.

## Hedging higher order Greeks – Hedging a book of short call options

Lesson Four – Hedging higher order Greeks for a book of short call options We are now ready to move to a more sophisticated version of our hedging higher order Greeks problem. Rather than limiting ourselves to a single short position we are going to

## Hedging higher order Greeks – Solver Solution review

Hedging Higher order Greeks – Lesson Three We are now ready to solve the Gamma Vega hedging optimization model in Excel created in our first two lessons earlier. For a quick review see: Lesson One – Introduction Lesson Two – Setting up the Solver Model

## Option Greeks. Using Solver to hedge Vega Gamma exposure

Option Greeks. Option Hedging using Excel. Since a spot, forward or future position is linear in its pay off it has no second order derivative. Options on the other hand are non-linear (asymmetric payoffs). While we can get away with hedging Delta with a linear

## Crude oil price forecasting models – 11 pictures in 11 minutes

Crude Oil price forecasting models – 11 images in 11 minutes. Recent years have seen an increase in the volatility of oil prices. This should not come as a surprise; the prices of oil are dependent upon several external factors, only some of them economic

## Is High Frequency Trading (HFT) the same as front running? Michael Lewis makes it official

While Liar’s Poker was Micheal Lewis first book that I read, I became a fan for life with the New New Thing, the book that broke the story of the boat that built Netscape. The Big Short, Blindside, Money ball and Boomerang further cemented that

## Trading tips. Setting Stop Loss Limits

Trading tips. Setting Stop Loss Limits. In our case study on setting stop loss limits we reviewed stop loss limit estimates for Oil, Gold and Silver futures trading. As a trader capital management can be your biggest strength or your biggest weakness. Setting and reviewing

## Monte Carlo Simulation Model How to – First pass

Monte Carlo Simulation Model – How To – Simulating Crude Oil Prices To simulate crude oil prices we will follow a multi step process. We first present the input required and output produced from the simulation model and then follow with a step by step