Arbitrage Research and Trading

Subject Index

 
A
Abuses
"churn'm and burn'm"	131
Trader fraud	144
accrual accounting	163
ADRs	91
annualisation	356
Annutisation	276
Arbitrage	41, 145
assets	53
Default/Credit Risk	50
geographical	43
mispricing	43
riskless	44
synthetic	43
synthetically replicated portfolio	54
temporal	43
traditional	41
Arbitrage Pricing Theory	65
(APT)	67
Arbitrage Trading Strategies	117
Asset Class
Commodities	88
Equities	87
Foreign Exchange	88
Interest Rate Products	87
Asset Classes	87
Asset/Liability Committee (ALCO)	206
audit	111
Average	525
B
Back Testing	603
Backward Testing	600
Bank of England (BoE)	206
bid/offer spread	15
Black-Scholes
assumptions	497
Black & Scholes	479
Option Pricing Equation	493
Bonuses	156, 178
Borrowers	15. See also Participants
Brokers	129. See also Participants
broker	15
Bucket Curve Shifts	428
Bundesbank	79
Business Day Basis	282
business plan	175
buy&hold strategy	110
C
CAD I	160
CAD II	160
Calibration	331, 356
call-spread	442
Capital	154
Operating Capital	154
Operating costs	156
Regulatory capital	159
Regulatory Capital	154
Risk Capital	157
Trading/Risk Capital	154
Trading-Risk Capital	157
Capital Asset Pricing Model	65
CAPM	65
Cash Flow	165
Cash Flow Matching	437
Cash is King	10
chaos	580
Cheap/Dear Analysis	580, 585
CDA	585
Client
Corporate	29, 30
Institutional	29, 30
Inter-bank	29, 31
Retail	27
Sovereigns	31
compensation packages	156
Constant Elasticity of Variance	367
contingent claims	98
contract	89
forward and futures	92
over-the-counter (OTC)	90
settlement rules	89
underlying deliverable	89
value/payout formula	89
Convertible Bonds	555
convexity	390, 536
Correlation/Covariance	535
Counterparty Exposure	159
Covariance VaR (CVaR)	446, 454, 463, 467, 468
Credit Default Swaps	445
cross-correlation	535
Cumulative Density Function CDF	306
CVaR	463
D
Delta and Gamma neutral	418
Delta neutral	407
demand	11
Digital Options	315, 358
Directional strategies	114
Buy & Hold	114
Directional trading strategies	114
Discount Factors	263
Discounting multiple cash flows	270
discrete vs. continuous time	346
Distribution
Normal Distribution	305
Uniform Distribution	305
Distributions
Continuous	304
Discrete	303
Implied	581
Drawdown measures	187
drift	287, 331, 344
Dynamic Replication	51. See also synthetic replication
Delivery	51
E
economics	78
macro-economics	78
micro-economics	78
Efficient Frontier	65
End Users	150
equilibrium	12
Exchange for Physical (EFP)	92
Exit Conditions
Core	121
discipline	121
Specific	121
Expectations	301
Continuous	304
Discrete	301
expected loss level	314
F
Fair Value	46
Fast Fourier Transform	583
FFT	583
fixed costs	155
Forecasting
model	292
Prices	320
Returns	320
Formulations
Closed form vs. Numerical	257
Difference	339
Difference vs. Differential	346
Differential	339
differential/integral equation	361
Model vs. Solution	255
Forward markets	45
forward prices
dynamics	287
Forward Rates	267
Forward Testing	600, 601
forward-forward	94
Forwards	45
delivery price	47
IOU's	45
fractals	580
Fund Manager	138
Futures	93
G
Game
Coin Toss	311
Dice Rolling	312
Gamma hedge	413
Gamma neutral	412
GARCH	580
Gaussian	336, 359, 500
Generally Accepted Accounting Principals (GAAP)	163
Greeks	396
H
Hedge
ratio	404
slippage	380, 412
hedgers	150
Hedgers	15. See also Participants
Hedging
Profile match based	371
Sensitivity based	371
Variability based	371
histogram	59
Historical VaR (HVaR)	447, 454
HVaR	456
holding period	71
I
Immunisation	437
integration	308
inter-bank	133
Interest Basis	282
Interest Rate Parity	53
Interest Rates
Annutisation	276
Compound Interest	265
Continuous compounding	266
Forward Rates	267
Frequency conversion	266
Price to yield conversion	275
Simple Interest	264
Spot	264
intermediaries	15
Internal Rate of Return	271
IRR	271
investment income	113
Investors	15. See also Participants
IR Curves	270
Corporate	279
Government	279
in Practice	278
IRR	278
LIBOR	279
mean-reverting	558
Zero-Coupon	278
Ito's Lemma	348, 481
J
Jump-Diffusion	366
K
Knock-in	552
Kurtosis	525
L
Lenders	15. See also Participants
Log-Normal	328
M
mandate	6
Margining	102
Market Basics	5
Market Convention
most common model	368
Market Makers	26, 118, 133
Market Making	118
market price of risk	63, 289
Market Risk	See also Risk
Markowitz	65
mark-to-market	163
Mathematical modelling	255
of securities prices	287
Mean Variance Optimisation (MVO)	623
Mean-Variance Optimisation (MVO)	65, 125, 438
Merton	479
mispricing	118
model of uncertainty	325
Modelling the Price/Returns processes	290
Models
absolute	322
arithmetic	322
geometric	323
relative	323
Moments
volatility	524
Monte Carlo VaR (MCVaR)	447, 455
MCVaR	469
mountain range	336
multiple dimensions of risk	415
N
negative prices	327
Non-Linear Dynamics (NLD)	584
Normal	328
Normally Distributed Differences
Absolute	341
Relative	342
Numerical Approximation Errors	351
Numerical methods	257
O
Off Balance Sheet (OBS)	160
Open/High/Low/Close	533
opportunity loss	15
optimal holding period P&L analysis	623
optimal portfolios objectives	439
Options	96
surface	194
Ornstein-Ühlenbeck Equations	366
Over trading	131
P
P&L vs. Value	166
Paper Trading	120
PaR	69, 372
Efficient Frontier	73, 613
Parallel Curve Shifts	427
Participants
Brokers	25
Commodity Trading Advisors	24
Hedge Funds	24
Hedgers	21
Insurance Companies	24
Investors	21
Net Lenders/Borrowers	18
Net Lenders/Borrowers - Investment Banking	18
Net Lenders/Borrowers - M&A	20
Net Lenders/Borrowers - Mergers and Acquisitions	20
Net Lenders/Borrowers - new Issues	18
Net Lenders/Borrowers - Traditional Banking	18
Outright Borrowers	18
Outright Lenders	16
Pension Funds	24
payout	89
linear or non-linear	89
Performance measurement	168
portfolio variance	466
Position keeping	205, 371
position sensitivities	216
Position Sensitivity Measures	376
Present Value Theory	262
primary markets	14
Principle Component Analysis	581
Probability Density Function	306
Profile Matching	195, 435
Profit at Risk (PaR)	72, 174, 523, 592
proprietary liability
trading	3
Proprietary Liability Trading	15
Prop Trader	138
Prop trading	113
Provisioning	518
Pyramid Hedging	406, 415
Q
quadrature	362
Quasi Forecasting Model	319
R
rebalance optimisers	438
rebalancing strategies	109
regulators	365
repo	117, 332
reverse	117
repo rates	332
residual risk	119
retail mortgages	556
revenue generation policies	128
Risk	57
Credit Risk	184
Event Risk	185
Market Risk	57, 184
Model/Systems/Valuation	185
Operational	185
Traditional measures	186
Types of	184
risk and return	56
Risk Management	205, 371
Risk Measure
Drawdown	57
Profile Matching	57
Sensitivity	57
VaR	58
Variability	57
risk measurement	365
Risk Neutral Valuation	479, 481, 485
Risk Preference	60
risk premium	63
risk reporting	219
Risk/Return profile	56, 59, 60, 62
Risk-adjusted Performance Calculations	612
Root Finding	275
Root-2	336, 359, 500
S
Scenario Analysis
multi-dimensional	423
secondary markets	14
Securities Market Line (SML)	66
Sensitivity
chord slope	377
Extrapolated vs. Empirical	221
Instantaneous	381
Matching and Hedging	373
Measures	191
Multi-Dimensional	395
reporting	220
scenarios	420
Sensitivity of	390
tangent slope	382
V01	376
serial forwards	96
serial-correlation	535
Settled for Difference (SFD)	92
Settlement Convention	282
Shape of Uncertainty	325
Sharpe Ratio	171
Skew	525
SPYPDERs	91
squeeze risk	400
Static Replication/Delivery	See als dynamic replication and synthetic replication
Statistical Forecasting	290
Stochastic Calculus	344, 349
stochastic valuation	291
stochastic volatility	366
structured product	98
Structuring a trade	108
supply	11
Supply/Demand	11
Swaps	95
IR Swap	117
Synthetic Replication	502, 511, 514
slippage	119
T
tailing	536
Taylor Series	392
Technical Analysis	116
term-structure	425
term-structure of volatility	499
Term-Structure Theories (TST)	560
time buckets	428
Time Evolution of Uncertainty	334
Time Series Analysis (TSA)	583
time stretching factor	338
Trade Discipline
Draw-down exit	107
Event-limit	107
Other	107
Time-limit	107
Up-side exit	107
trade idea generation	108
trade optimisers	609
Trading Cycle	106
Audit	106
Execution/Selling	106
Position Keeping	106
Structuring	106
Trade Idea Generation	106
Trading Discipline	120
Trading Floor
asset class desks	36
asset class desks - bonds	37
asset class desks - capital markets	37
asset class desks - commodities	38
asset class desks - equities	36
asset class desks - FX	36
asset class desks - money markets	36
back office	39
clients and counterparties	39
compliance	39
front office	34
mid office	38
quant/research groups	39
risk management	39
sales/structuring desks	34
senior management	39
trading desks	35
traditional forecast	319
Transactions Costs	158
Treasurers	150
trend	287
Trends and Wobbles	291
Treynor's Ratio	172
U
Uncertainty	24, 285
V
V01 flat	399
Valuation Under Uncertainty	357
VaR	371, 446
Covariance VaR (CVaR)	371
Credit VaR	371, 471
formulation	448
Historical VaR (HVaR)	371
Measurement	454
Measures	197
model assumptions	449
Monte Carlo VaR (MCVaR)	371
policy	450
VaR Methods	476
Verification	470
Variability Measures	190
variable costs	155
Variance	525
of a portfolio	465
Vega	416
Volatility	523
"P&L" Volatility	578
"Trading" Volatility	531, 532, 547, 548, 549, 575
Absolute	538
Advanced Concepts	527, 580
Asian options	550
Barrier option	550
Convertible Bonds	550
GARCH	572
Historical, Empirical, Statistical	524
Histories of "Historicals"	540
implied volatility	544, 545
Intra-Period Effects & Annualisation	532
Mean Reversion	560
Mean Reverting	571
model volatility	544
Quantos	550
Relative	537
Sample Weighting	531
Sampling Frequency	530
Sampling Length	529
Skew	560, 568
smile	569
Spread Options	550
stationarity	540
Surfaces	565
Term-Structure and Expiration	561
Term-Structure in terms of Maturity of the Underlying	563
Term-Structure Models	557
Term-Structure of Volatility	560
Traded Volatility	560
W
Where is the Greed?	32
Z
Zero-Coupon
rate	265
volatility	426