{"id":702,"date":"2023-01-29T17:35:24","date_gmt":"2023-01-29T17:35:24","guid":{"rendered":"https:\/\/compfinance.ddns.net\/wordpress\/?p=702"},"modified":"2023-01-29T17:35:24","modified_gmt":"2023-01-29T17:35:24","slug":"question-4-can-you-price-options-using-arithmetic-brownian-motion","status":"publish","type":"post","link":"https:\/\/compfinance.ddns.net\/wordpress\/2023\/01\/29\/question-4-can-you-price-options-using-arithmetic-brownian-motion\/","title":{"rendered":"Question 4: Can you price options using Arithmetic Brownian motion?"},"content":{"rendered":"\n<p>hello fellow quants,<br>Today&#8217;s question is:<br>Q4: &#8220;Can you price options using Arithmetic Brownian motion?&#8221;<\/p>\n\n\n\n<p>Best,<br>Lech<\/p>\n\n\n\n<p>1. Can we use the same pricing models for different asset classes?<br>2. How is the money savings account related to a zero-coupon bond?<br>3. What are the challenges in the calculation of implied volatilities?<br>4. Can you price options using Arithmetic Brownian motion?<br>5. What is the difference between a stochastic process and a random variable?<br>6. What are the advantages and disadvantages of using ABM\/GBM for modelling a stock process?<br>7. What sanity checks can you perform for a simulated stock process?<br>8. What is the Feynman-Kac formula?<br>9. What is the implied volatility term structure?<br>10. What are the deficiencies of the Black-Scholes model? Why is the BS model still used?<br>11. How does the Ito\u2019s table look like if we include the Poisson jump process?<br>12. What is the impact of jumps on implied volatility?<br>13. How to derive a characteristic function for a model with jumps?<br>14. Is the Heston model with time-dependent parameters affine?<br>15. Why is adding more and more factors to the pricing models not the best idea?<br>16. Can you interpret the Heston model parameters and their impact on the volatility surface?<br>17. Can we model volatility with the Arithmetic Brownian Motion process?<br>18. What are the benefits of FFT compared to a \u201cbrute force\u201d integration?<br>19. What to do if the FFT\/COS method does not converge for increasing expansion terms?<br>20. What is a standard error? How to interpret it?<br>21. What is weak and strong convergence in Monte Carlo pricing?<br>22. What are the challenges of discretizing the CIR process using the Euler method?<br>23. Why do we need Monte Carlo if we have FFT methods for pricing?<br>24. How to hedge Jumps?<br>25. What is pathwise sensitivity?<br>26. What is the Bates model, and how can it be used for pricing?<br>27. What is the relation between European and Forward-start options?<br>28. What instruments to choose to calibrate your pricing model?<br>29. How to calibrate a pricing model? How to choose the objective function?<br>30. What are the Chooser options?<br><a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=finance&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#Finance<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=interviewquestions&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#InterviewQuestions<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=quantiativefinance&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#QuantiativeFinance<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=quant&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#Quant<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=computationalfinance&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#ComputationalFinance<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=interview&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#interview<\/a><a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=quants&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#quants<\/a>,\u00a0<a href=\"https:\/\/www.linkedin.com\/feed\/hashtag\/?keywords=cfa&amp;highlightedUpdateUrns=urn%3Ali%3Aactivity%3A7019553529518260224\">#cfa<\/a><\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"Can you price options using Arithmetic Brownian motion?\" width=\"1290\" height=\"726\" src=\"https:\/\/www.youtube.com\/embed\/sYS-qFCDaSA?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>hello fellow quants,Today&#8217;s question is:Q4: &#8220;Can you price options using Arithmetic Brownian motion?&#8221; Best,Lech 1. Can we use the same pricing models for different asset classes?2. How is the money savings account related to a zero-coupon bond?3. What are the challenges in the calculation of implied volatilities?4. Can you price options using Arithmetic Brownian motion?5. What is the difference between a stochastic process and a random variable?6. What are the advantages and disadvantages of using ABM\/GBM for modelling a stock process?7. What sanity checks can you perform for a simulated stock process?8. What is the Feynman-Kac formula?9. What is the\u2026<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[10,11,8],"class_list":["post-702","post","type-post","status-publish","format-standard","hentry","category-education","tag-computational-finance","tag-interview-questions","tag-quant"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":5}},"_links":{"self":[{"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/posts\/702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/comments?post=702"}],"version-history":[{"count":1,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/posts\/702\/revisions"}],"predecessor-version":[{"id":703,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/posts\/702\/revisions\/703"}],"wp:attachment":[{"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/media?parent=702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/categories?post=702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/compfinance.ddns.net\/wordpress\/wp-json\/wp\/v2\/tags?post=702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}