Bank Asset Liability Management (ALM) – A quick review of default ALM strategies. In our last post we looked at a history of US Treasuries yield curve shifts between 1978 and 2010. We now move to a simplified analysis of the maturity distribution of assets and liabilities on a bank balance sheet in anticipation of expected yield [...]
A visual history of USD Treasury yield curve shifts – 1978 – 2014. While we have spent a fair bit of time discussing Asset Liability Management models, we really haven’t spent enough time discussing interest rates. Specifically the historical behavior of US Treasury yield curve. We pose some basic questions and try and answer them [...]
Testing Facebook Fan page reach versus Google+ conversions Tired of reviewing, writing and editing content over the last 6 weeks, this weekend I decided to run a slightly skewed social experiment. I had always wondered about the practical reach of my social network fan pages and over the month of June I had been tweaking my [...]
Understanding Option Greeks – Introducing Gamma Gamma is the second derivative of the option price with respect to the price of an underlying asset. Alternatively, it is the rate of change in the option Delta due to a change in the underlying asset price. Figure 1: Gamma against Spot What does that mean in simpler language? In the image [...]
The startup scene in Karachi. I came back home (Karachi) in 2003 and for a list of odd reasons decided to decline two respectable offers to shift to startup mode again. The first two years were a slog. The network I had left when I headed to the US in the ’90′s had grown in prominence and [...]
Alpha, Fair Alpha or Gamma Rent. N. N. Taleb explains Alpha or the Gamma Rent, in his book Dynamic Hedging, as ‘Theta per Gamma ratio’. At first the concept is quite difficult to grasp but when we reduce the risk free rate and the dividend yield rate to zero, the equation starts to become more edible. Equation In [...]
The daisy fields of Nathiagali. The recipe for a perfect break from civilization. Every few years we get together to bring all the kids under one roof in Nathiagali. The week long break is defined by morning and evening walks where the kids ride horses and the adults trek. There is nothing like sitting on a grassy [...]
Chasing Butterflies in Nathiagali. Once you start shooting butterflies with your Canon EOS 70D on your week long vacation, there is not much that you can do to stop. Three evenings and a few hours later here is a sample collection of wings that we found nesting and feeding on our sundeck tree in Nathiagali, [...]
Chasing Swallowtail butteflies Last weekend in Nathiagali late in the afternoon, while lazing around on a sun deck chair, I noticed that the butterflies around our bunglow were feasting on a single flower laden tree. Baba and I had finally sat down to chat and I had been telling him about how the the most recent [...]
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 these implied volatility levels. We decide to write a call option. [...]