Quantitative Finance
www.peaks2tails.com
www.peaks2tails.com Satyapriya Ojha
Quant Finance Math Primer
Math Primer
www.peaks2tails.com Satyapriya Ojha 2
Quant Finance Math Primer
Quadratic approximation of 𝑒 𝑥 using Maclaurin series
Quadratic approximation of 𝑒 𝑥 at x=2 using Taylor Series
www.peaks2tails.com Satyapriya Ojha 3
Quant Finance Math Primer
Numerical Integration
(16 steps)
(100 steps)
www.peaks2tails.com Satyapriya Ojha 4
Quant Finance Math Primer
Gradient Descent ( stuck at local minima )
Gradient Descent ( reaching global minima )
www.peaks2tails.com Satyapriya Ojha 5
Quant Finance Math Primer
Gradient Descent in 2D
(iteration 0)
(iteration 10)
www.peaks2tails.com Satyapriya Ojha 6
Quant Finance Math Primer
Root finding procedure ( Bisection Method )
(after step 1)
(after step 4)
www.peaks2tails.com Satyapriya Ojha 7
Quant Finance Math Primer
Root finding procedure ( Newton Raphson)
(Initial)
(after step 1)
www.peaks2tails.com Satyapriya Ojha 8
Quant Finance Math Primer
Rotation Matrix
www.peaks2tails.com Satyapriya Ojha 9
Quant Finance Math Primer
Shear Matrix
www.peaks2tails.com Satyapriya Ojha 10
Quant Finance Math Primer
Stretching Matrix
www.peaks2tails.com Satyapriya Ojha 11
Quant Finance Math Primer
Poisson Distribution approaching Normal Distribution for high 𝜆
www.peaks2tails.com Satyapriya Ojha 12
Quant Finance Math Primer
Line density (univariate) vs Area density (bivariate)
www.peaks2tails.com Satyapriya Ojha 13
Quant Finance Math Primer
Independence Copula
www.peaks2tails.com Satyapriya Ojha 14
Quant Finance Math Primer
Co-monotonic copula
www.peaks2tails.com Satyapriya Ojha 15
Quant Finance Math Primer
Counter monotonic copula
www.peaks2tails.com Satyapriya Ojha 16
Quant Finance Math Primer
Gaussian Copula
(No
correlation)
(+ve
correlation)
www.peaks2tails.com Satyapriya Ojha 17
Quant Finance Math Primer
T Copula
(No correlation)
(+ve correlation)
www.peaks2tails.com Satyapriya Ojha 18
Quant Finance Math Primer
Clayton Copula
Strong Lower Tail Dependence
Less Upper Tail Dependence
Good fit for modeling dependence in lower extremes
www.peaks2tails.com Satyapriya Ojha 19
Quant Finance Math Primer
Frank Copula
Symmetric Upper and Lower Tail Dependence
www.peaks2tails.com Satyapriya Ojha 20
Quant Finance Math Primer
Monte Carlo Convergence
www.peaks2tails.com Satyapriya Ojha 21
Quant Finance Math Primer
Monte Carlo – Acceptance Rejection Sampling
www.peaks2tails.com Satyapriya Ojha 22
Quant Finance Math Primer
Monte Carlo – Box Muller for Normal Random
www.peaks2tails.com Satyapriya Ojha 23
Quant Finance Math Primer
Monte Carlo – Polar method for Normal Random
www.peaks2tails.com Satyapriya Ojha 24
Quant Finance Math Primer
Monte Carlo – Linear Congruence Generators ( LCG )
www.peaks2tails.com Satyapriya Ojha 25
Quant Finance Math Primer
Monte Carlo – naïve Vs stratified
www.peaks2tails.com Satyapriya Ojha 26
Quant Finance Math Primer
Monte Carlo – naïve Vs Importance Sampling
www.peaks2tails.com Satyapriya Ojha 27
Quant Finance Math Primer
Stochastics
www.peaks2tails.com Satyapriya Ojha 28
Quant Finance Math Primer
Simple Symmetric Random Walk
(10 steps)
(100 steps)
www.peaks2tails.com Satyapriya Ojha 29
Quant Finance Math Primer
Scaled Symmetric Random Walk
(50 steps)
(200 steps)
www.peaks2tails.com Satyapriya Ojha 30
Quant Finance Math Primer
Standard Brownian Motion
(T=0.1)
(T=0.5)
www.peaks2tails.com Satyapriya Ojha 31
Quant Finance Math Primer
Arithmetic Brownian Motion
(T=0.2)
(T=0.5)
www.peaks2tails.com Satyapriya Ojha 32
Quant Finance Math Primer
Geometric Brownian Motion
(T=0.2)
(T=1.5)
www.peaks2tails.com Satyapriya Ojha 33
Quant Finance Math Primer
Exponential Martingale
www.peaks2tails.com Satyapriya Ojha 34
Quant Finance Math Primer
Log normal diffusion of Stock Price
www.peaks2tails.com Satyapriya Ojha 35
Quant Finance Math Primer
Short rate dynamics under Vasicek
www.peaks2tails.com Satyapriya Ojha 36
Quant Finance Math Primer
Radon Nikodym Derivative
www.peaks2tails.com Satyapriya Ojha 37
Quant Finance Math Primer
Change of Measure
www.peaks2tails.com Satyapriya Ojha 38
Quant Finance Math Primer
Girsanov Theorem
www.peaks2tails.com Satyapriya Ojha 39
Quant Finance Math Primer
Option Pricing
www.peaks2tails.com Satyapriya Ojha 40
Quant Finance Math Primer
Delta
www.peaks2tails.com Satyapriya Ojha 41
Quant Finance Math Primer
Gamma
www.peaks2tails.com Satyapriya Ojha 42
Quant Finance Math Primer
Theta ( Call )
www.peaks2tails.com Satyapriya Ojha 43
Quant Finance Math Primer
Theta (Put)
www.peaks2tails.com Satyapriya Ojha 44
Quant Finance Math Primer
Vega
www.peaks2tails.com Satyapriya Ojha 45
Quant Finance Math Primer
European Call ( Euler Maruyama Scheme )
www.peaks2tails.com Satyapriya Ojha 46
Quant Finance Math Primer
European Call ( Log Euler Maruyama Scheme )
www.peaks2tails.com Satyapriya Ojha 47
Quant Finance Math Primer
European Call ( Milstein Scheme )
www.peaks2tails.com Satyapriya Ojha 48
Quant Finance Math Primer
European Digital Call
www.peaks2tails.com Satyapriya Ojha 49
Quant Finance Math Primer
Up and out Call (Barrier)
www.peaks2tails.com Satyapriya Ojha 50
Quant Finance Math Primer
Up and In Call (Barrier)
www.peaks2tails.com Satyapriya Ojha 51
Quant Finance Math Primer
Bermudan Option
www.peaks2tails.com Satyapriya Ojha 52
Quant Finance Math Primer
Bermudan Option (binning)
www.peaks2tails.com Satyapriya Ojha 53
Quant Finance Math Primer
Least Square Monte Carlo ( Longstaff Schwartz )
www.peaks2tails.com Satyapriya Ojha 54
Quant Finance Math Primer
Finite Difference Method
www.peaks2tails.com Satyapriya Ojha 55
Quant Finance Math Primer
Markov Models
www.peaks2tails.com Satyapriya Ojha 56
Quant Finance Math Primer
Stationary Probability Distribution
www.peaks2tails.com Satyapriya Ojha 57
Quant Finance Math Primer
Markov Simulation
www.peaks2tails.com Satyapriya Ojha 58
Quant Finance Math Primer
Chi-Sq test for Markov Chain
www.peaks2tails.com Satyapriya Ojha 59
Quant Finance Math Primer
Kolmogorov Equations (Analytical)
www.peaks2tails.com Satyapriya Ojha 60
Quant Finance Math Primer
Kolmogorov Equations (Taylor Series)
www.peaks2tails.com Satyapriya Ojha 61
Quant Finance Math Primer
Transition Matrix Estimator
www.peaks2tails.com Satyapriya Ojha 62
Quant Finance Math Primer
Machine Learning
www.peaks2tails.com Satyapriya Ojha 63
Quant Finance Math Primer
Bias, Consistency, efficiency
www.peaks2tails.com Satyapriya Ojha 64
Quant Finance Math Primer
Forward Selection
www.peaks2tails.com Satyapriya Ojha 65
Quant Finance Math Primer
Forward Stagewise Selection
www.peaks2tails.com Satyapriya Ojha 66
Quant Finance Math Primer
LARS
www.peaks2tails.com Satyapriya Ojha 67
Quant Finance Math Primer
Multinomial Logit
www.peaks2tails.com Satyapriya Ojha 68
Quant Finance Math Primer
Multi ordinal Logit
www.peaks2tails.com Satyapriya Ojha 69
Quant Finance Math Primer
Principal Component Analysis
www.peaks2tails.com Satyapriya Ojha 70
Quant Finance Math Primer
Partial Least Square Regression
www.peaks2tails.com Satyapriya Ojha 71
Quant Finance Math Primer
Cluster Analysis – Single Linkage
www.peaks2tails.com Satyapriya Ojha 72
Quant Finance Math Primer
Cluster Analysis – Complete Linkage
www.peaks2tails.com Satyapriya Ojha 73
Quant Finance Math Primer
Cluster Analysis – K-Means
www.peaks2tails.com Satyapriya Ojha 74
Quant Finance Math Primer
Linear Discriminant Analysis
www.peaks2tails.com Satyapriya Ojha 75
Quant Finance Math Primer
Support Vector Machines
www.peaks2tails.com Satyapriya Ojha 76
Quant Finance Math Primer
Support Vector Machines (Polynomial Kernel – 2D )
www.peaks2tails.com Satyapriya Ojha 77
Quant Finance Math Primer
Support Vector Machines (Polynomial Kernel – 3D)
www.peaks2tails.com Satyapriya Ojha 78
Quant Finance Math Primer
Support Vector Machines (radial basis RBF)
www.peaks2tails.com Satyapriya Ojha 79
Quant Finance Math Primer
Logistic Regression
www.peaks2tails.com Satyapriya Ojha 80
Quant Finance Math Primer
K-Nearest Neighbor
www.peaks2tails.com Satyapriya Ojha 81
Quant Finance Math Primer
Artificial Neural Network (ANN)
www.peaks2tails.com Satyapriya Ojha 82
Quant Finance Math Primer
ANN for Option Price
www.peaks2tails.com Satyapriya Ojha 83
Quant Finance Math Primer
LSTM
www.peaks2tails.com Satyapriya Ojha 84
Quant Finance Math Primer
Fuzzy Logic
www.peaks2tails.com Satyapriya Ojha 85
Quant Finance Math Primer
Bayesian Estimation - Poisson
www.peaks2tails.com Satyapriya Ojha 86
Quant Finance Math Primer
Bayesian Estimation – Spike Slab prior
www.peaks2tails.com Satyapriya Ojha 87
Quant Finance Math Primer
MCMC – Gibbs Sampler
www.peaks2tails.com Satyapriya Ojha 88
Quant Finance Math Primer
MCMC – Metropolis Hastings
www.peaks2tails.com Satyapriya Ojha 89
Quant Finance Math Primer
Expectation Maximization (EM)
www.peaks2tails.com Satyapriya Ojha 90
Quant Finance Math Primer
Kalman Filter
www.peaks2tails.com Satyapriya Ojha 91
Quant Finance Math Primer
Kalman Smoother
www.peaks2tails.com Satyapriya Ojha 92
Quant Finance Math Primer
Kalman Regression
www.peaks2tails.com Satyapriya Ojha 93
Quant Finance Math Primer
Time Series – AR(1)
www.peaks2tails.com Satyapriya Ojha 94
Quant Finance Math Primer
Time Series – AR(2)
www.peaks2tails.com Satyapriya Ojha 95
Quant Finance Math Primer
Time Series – MA(2)
www.peaks2tails.com Satyapriya Ojha 96
Quant Finance Math Primer
Time Series – MA Forecast
www.peaks2tails.com Satyapriya Ojha 97
Quant Finance Math Primer
Time Series – ARMA model
www.peaks2tails.com Satyapriya Ojha 98
Quant Finance Math Primer
TAR model
www.peaks2tails.com Satyapriya Ojha 99
Quant Finance Math Primer
Trend Stationary Time Series
www.peaks2tails.com Satyapriya Ojha 100
Quant Finance Math Primer
Seasonal Model
www.peaks2tails.com Satyapriya Ojha 101
Quant Finance Math Primer
Cointegration Models
www.peaks2tails.com Satyapriya Ojha 102
Quant Finance Math Primer
Vector Auto Regressive Model
www.peaks2tails.com Satyapriya Ojha 103
Quant Finance Math Primer
Impulse Response Function
www.peaks2tails.com Satyapriya Ojha 104
Quant Finance Math Primer
Survival Models – Cox PH
www.peaks2tails.com Satyapriya Ojha 105
Quant Finance Math Primer
Risk & Exposure Models
www.peaks2tails.com Satyapriya Ojha 106
Quant Finance Math Primer
Portfolio Optimization
www.peaks2tails.com Satyapriya Ojha 107
Quant Finance Math Primer
Value at Risk (1 stock) – Historical & Parametric
www.peaks2tails.com Satyapriya Ojha 108
Quant Finance Math Primer
Value at Risk (1 stock) – Monte Carlo
www.peaks2tails.com Satyapriya Ojha 109
Quant Finance Math Primer
Rolling Volatility
www.peaks2tails.com Satyapriya Ojha 110
Quant Finance Math Primer
Conditional Vs Unconditional Models
www.peaks2tails.com Satyapriya Ojha 111
Quant Finance Math Primer
Equally weighted Vs Exponentially Weighted (EWMA)
www.peaks2tails.com Satyapriya Ojha 112
Quant Finance Math Primer
ARCH (2)
www.peaks2tails.com Satyapriya Ojha 113
Quant Finance Math Primer
GARCH(1,1)
www.peaks2tails.com Satyapriya Ojha 114
Quant Finance Math Primer
Bivariate EWMA
www.peaks2tails.com Satyapriya Ojha 115
Quant Finance Math Primer
Univariate GARCH (symmetric)
www.peaks2tails.com Satyapriya Ojha 116
Quant Finance Math Primer
Univariate AGARCH (Asymmetric)
www.peaks2tails.com Satyapriya Ojha 117
Quant Finance Math Primer
Factor GARCH
www.peaks2tails.com Satyapriya Ojha 118
Quant Finance Math Primer
Normal Mixture Models
www.peaks2tails.com Satyapriya Ojha 119
Quant Finance Math Primer
Regime Switching Markov Model
www.peaks2tails.com Satyapriya Ojha 120
Quant Finance Math Primer
MGARCH – Diagonal VECH
www.peaks2tails.com Satyapriya Ojha 121
Quant Finance Math Primer
MGARCH – CCC
www.peaks2tails.com Satyapriya Ojha 122
Quant Finance Math Primer
MGARCH – DCC ( Step 1 )
www.peaks2tails.com Satyapriya Ojha 123
Quant Finance Math Primer
MGARCH – DCC ( Step 2 )
www.peaks2tails.com Satyapriya Ojha 124
Quant Finance Math Primer
Kernel Density Estimator
www.peaks2tails.com Satyapriya Ojha 125
Quant Finance Math Primer
Bivariate - Kernel Density Estimator
www.peaks2tails.com Satyapriya Ojha 126
Quant Finance Math Primer
Extreme Value Theory (EVT)
www.peaks2tails.com Satyapriya Ojha 127
Quant Finance Math Primer
GEV estimator
www.peaks2tails.com Satyapriya Ojha 128
Quant Finance Math Primer
Peaks over Threshold (PoT)
www.peaks2tails.com Satyapriya Ojha 129
Quant Finance Math Primer
Properties of Risk Measures ( Sub-Additivity , Convexity )
www.peaks2tails.com Satyapriya Ojha 130
Quant Finance Math Primer
Interest Term Structure with PCA
www.peaks2tails.com Satyapriya Ojha 131
Quant Finance Math Primer
Value-at-Risk with PCA (Application)
www.peaks2tails.com Satyapriya Ojha 132
Quant Finance Math Primer
Type I and Type II error : VaR Backtesting
www.peaks2tails.com Satyapriya Ojha 133
Quant Finance Math Primer
Breeden-Litzenberger ( Risk neutral density extraction)
www.peaks2tails.com Satyapriya Ojha 134
Quant Finance Math Primer
Dupire Local Volatility ( From price to local vol )
www.peaks2tails.com Satyapriya Ojha 135
Quant Finance Math Primer
Piecewise Linear Interpolation of volatility
www.peaks2tails.com Satyapriya Ojha 136
Quant Finance Math Primer
Cubic Spline Interpolation of volatility
www.peaks2tails.com Satyapriya Ojha 137
Quant Finance Math Primer
No Arbitrage Interpolation of volatility
www.peaks2tails.com Satyapriya Ojha 138
Quant Finance Math Primer
Ho Lee Calibration
www.peaks2tails.com Satyapriya Ojha 139
Quant Finance Math Primer
Exposure Profiles
(ZCB)
(Coupon
Bond)
(swap)
(FRA)
www.peaks2tails.com Satyapriya Ojha 140
