Thursday, September 07, 2006

The 32 year old model

Blogs cant take subcripts and superscripts? Guess I got no choice but to post it this way.

Did some testing and here are the results I got, assuming we have these inputs;
E(time 0) = 4, σ(E) = 0.3, r = 0.0435, T = 2 and D = 15

This gives V(time 0) = 17.74835 and σ(V) = 0.067841
With these two values we also got ourselves,

Probability of default = 0.45%
Market value of debt = 13.74835
Present value of promised payment on the debt = 13.75016
Expected loss from default = 0.01%
Expected recovery rate in the event of default = 97.07%

Wednesday, September 06, 2006

Playstation3: Gaming on a nuclear level :-)

Read it on Bloomberg that IBM will use processors designed for the long awaited Playstation3 video game console to build the world's fastest computer which will be used for work on nuclear weapons! The computer will be able to calculate 1,000 trillion calculations per second or a "petaflop" and a maximum speed capacity of 1,600 trillion calculations a second. According to IBM, the computer will occupy an area equivalent to three basketball courts! Can't wait to add this beast into my collection of video game consoles...

CDS making its way here?

Rumor has it that Malaysia will soon have Credit Default Swaps. When I heard about it, the first thought I had was, how will they be calculating the prices and spreads. The only experience I have on CDS is through my uni assignments and I remember doing pages of integrations to calculate CDS spreads, reckon it would have been faster on Excel but the professor wanted all the calculations on paper. I am hoping that bankers here will escape the task of calculating CDS spreads on paper...

Monday, September 04, 2006

It's all about the box

So much have been emphasize on thinking out of the box when it comes to work. Imagination seems to have kept knowledge on the substitute bench lately. Afterall, there is no limit to imagination unlike knowledge. So exactly what does it take for one to start thinking out of a box? To figure that out, lets "think out of the box" and look at this from another angle, lets figure what it takes to start thinking in a box. The notion of thinking in the box is the simplest form of mental process based on knowledge and past events in the absence of creativity (no this is not an official description). Basically, a person who thinks in the box is only interested in getting the job done hence the mindset; one solution for one problem.

I would think that people who are mathematically inclined tend to think in the box, for the mere reason that each math problem has only 1 unique answer (there are exceptions i must say). Say, if you can't solve a calculus problem during an exam, you'll probably get ZERO out of it even if you were to scribble something, but its different for an exam in arts/humanities, chances are you'll get a good few marks even if you wrote BS! I am telling this from experience, math is rigid, same goes to those who are mathematically inclined. Thinking out of the box requires creativity, willingness to accept new ideas (even non proven ones) and some appetite for risk.

Studying risk subjects during my varsity days made me lie even further left on the efficient frontier, so much for those risk modeling projects (I guess I think in the box too but I would like to see my box as a big big box! yeah bigger than a 42' plasma tv box). Its strange how I find non technical/mathematical people rich with creativity and ideas. Maybe its because their mental processes flow freely without any mathematical limits, laws of physics, economic assumptions...etc. In other words, we're too uptight with theories and equations up our ass. How do quants think out of the box then? They're pretty uptight too aren't they, coming from fields like physics, mathematics, engineering. So how do they answer questions like; whats 2+2? what happens if you throw a tennis ball at the Great Wall? These are supposedly interview questions for an equity derivatives position I read about from an article. So loosen up people...try taking some art/humanities subjects if you're going to be majoring in uptight-up-your-ass fields.

'Crocodile Hunter' killed by stingray barb

This news came to me this afternoon at work, how shocking! No one would have expected this environmentalist's life to end this way. A great loss to Australia and the rest of the world. He made documentaries fun and interesting to watch with his outrageous antics, I'll certainly miss his documentary series...

To read more about it, here is the link;