Category: RISK MANAGEMENT

How to Forecast Implied Volatility

How do you determine the volatility of an unlisted entity, and more generally, how do you forecast volatility? These are non-trivial questions. There is an interesting discussion on Stackexchange: Here is a question I had for a long time but I never asked. Let’s take an easy example, AirBnb will …

Garman-Klass-Yang-Zhang Historical Volatility Calculation – Volatility Analysis in Python

In the previous post, we introduced the Garman-Klass volatility estimator that takes into account the high, low, open, and closing prices of a stock. In this installment, we present an extension of the Garman-Klass volatility estimator that also takes into consideration overnight jumps. Garman-Klass-Yang-Zhang (GKYZ) volatility estimator consists of using …

Another Misuse of Financial Derivatives

Just like any financial derivatives that were initially designed for risk management purposes, interest rate swaps are an effective tool for managing and transferring interest rate risks as long as those risks are well understood.  But as banks and financial institutions are constantly trying to invent new financial products to …

Merton Credit Risk Model, a Case Study

In a previous post entitled Credit Risk Management Using Merton Model we provided a brief theoretical description of the Merton structural credit risk model. Note that, The Merton model is an analysis model – named after economist Robert C. Merton – used to assess the credit risk of a company’s …