1.

pricing, option, strike price, stochastic, C#

2. brain-teaser, probability
3. Linear regression!!!!!!
4. quant follow market: how to influence bond, pricing

China Huarong risk management intern:

Stress-test using Monte Carlo simulation:

1. Define the portfolios: made up of different types of assets such as stocks, bonds, commodities,
and currencies. define the weights of each asset

2. Identify the stress scenarios: test the portfolio's performance under a market crash, a recession,
or a sudden increase in interest rates.

3. Determine the distribution of returns: Determine the distribution of returns for each asset in the
portfolio. use other statistical methods to estimate the distribution of returns, such as log-normal,
normal, or student-t distributions.

4. Generate random scenarios: Use Monte Carlo simulation to generate random scenarios for each
stress scenario. For each scenario, generate random returns for each asset in the portfolio based on the
distribution of returns that you determined in step 3. You can generate as many scenarios as you want,
but a good starting point is around 10,000 scenarios.

5. Calculate portfolio returns: Calculate the portfolio returns for each scenario. To do this, multiply
the weights of each asset in the portfolio by their respective returns. Then sum up the returns of all
assets in the portfolio to get the total portfolio return for that scenario.

6. Analyze the results: Analyze the results of the stress test. Look at the distribution of portfolio
returns for each stress scenario. This will give you an idea of the potential range of outcomes for each
scenario. You can also calculate other metrics, such as the worst-case scenario, the median scenario,
and the expected return.

7. Adjust the portfolios: Based on the results of the stress test, you can adjust the portfolios to
make them more resilient to stress scenarios. For example, you might want to reduce the weight of
assets that are more sensitive to market crashes or increase the weight of assets that perform well
during recessions.

8. Monitor the portfolios: Finally, monitor the portfolios on an ongoing basis to ensure that they
continue to perform well under different market conditions. You can also conduct regular stress tests to
identify any new stress scenarios that you need to prepare for.

Overall, conducting a stress test using Monte Carlo simulation can help you identify potential
weaknesses in your portfolios and make them more resilient to market downturns. It's important to use
realistic assumptions and to update the stress scenarios and distributions of returns as market
conditions change.
what is monte carlo simulation:

The basic idea of Monte Carlo simulation is to use random numbers to simulate a system that is too
complex to solve analytically. In finance, for example, Monte Carlo simulation can be used to simulate
the behavior of a portfolio of stocks, bonds, or other financial instruments under different market
conditions.

Mathematically, Monte Carlo simulation involves generating a large number of random samples from a
probability distribution that represents the uncertainty in the system being modeled. These random
samples are then used to estimate the behavior of the system under different conditions. The more
samples that are generated, the more accurate the simulation will be.

The output of a Monte Carlo simulation is a set of simulated values for the variable being modeled,
along with statistical measures such as mean, standard deviation, and percentiles. These simulated
values can be used to estimate the probability distribution of the variable and to make predictions about
its behavior under different conditions.

Monte Carlo simulation can be used to model a wide range of complex systems, from financial portfolios
to chemical reactions to weather patterns. It is a powerful tool for analyzing risk and uncertainty and for
making informed decisions in complex environments.

4 steps:

https://www.investopedia.com/terms/m/montecarlosimulation.asp
Pricing stock options using Monte Carlo simulation:

Project Title: Monte Carlo Simulation for Pricing Stock Options

Project Objective:

The objective of this project is to develop a Monte Carlo simulation model for pricing stock options using
the Black-Scholes model and to evaluate the model's performance in comparison to historical data.

Methodology:

Data Collection: Collect data on the stock's historical prices, volatility, and other relevant market data.

Model Development: Develop a Monte Carlo simulation model for pricing stock options using the Black-
Scholes model. This model will use random number generation to simulate future stock price
movements and estimate the option's value at each point in time.

Calibration: Calibrate the model using historical data to estimate the model parameters, such as
volatility and risk-free interest rate.

Performance Evaluation: Evaluate the performance of the model by comparing the predicted option
prices with the actual market prices of options over a given time period.

Sensitivity Analysis: Perform a sensitivity analysis to determine how changes in the input parameters
affect the option prices.

Deliverables:

The project will include the following deliverables:

A detailed report describing the Monte Carlo simulation model, including the assumptions,
methodology, and results.

A spreadsheet tool for pricing stock options using the Monte Carlo simulation model.

A sensitivity analysis report that identifies the most significant factors affecting the option prices and the
model's sensitivity to changes in those factors.
Conclusion:

The Monte Carlo simulation model for pricing stock options using the Black-Scholes model can be a
valuable tool for financial analysts and investors to evaluate the pricing of options. By incorporating a
stochastic component into the model, the Monte Carlo simulation can provide a more accurate estimate
of the option prices and take into account the uncertainty and variability of the stock price movements.
The sensitivity analysis can also help analysts identify the most important factors affecting option prices
and better understand the risks associated with options trading.

Greeks:

The Greeks, in finance, are a set of mathematical measures used to assess the sensitivity of an option's
price to changes in various underlying factors, such as the stock price, volatility, time to expiration, and
interest rates. The Greeks are widely used by options traders and investors to manage risk and make
informed decisions about options trading.

Here are some of the most commonly used Greeks in finance:

Delta (Δ): Delta measures the sensitivity of an option's price to changes in the underlying asset price. A
delta of 1 means that the option price will change by the same amount as the underlying asset price,
while a delta of 0 means that the option price is not affected by changes in the underlying asset price.

Gamma (Γ): Gamma measures the sensitivity of an option's delta to changes in the underlying asset
price. A higher gamma means that the option's delta will change more significantly in response to
changes in the underlying asset price.

Theta (Θ): Theta measures the sensitivity of an option's price to changes in time to expiration. A higher
theta means that the option price will decrease more rapidly as the time to expiration approaches.

Vega (ν): Vega measures the sensitivity of an option's price to changes in the volatility of the underlying
asset. A higher vega means that the option price will increase more significantly in response to an
increase in volatility.

Rho (ρ): Rho measures the sensitivity of an option's price to changes in interest rates. A higher rho
means that the option price will increase more significantly in response to an increase in interest rates.
By understanding the Greeks and how they interact with each other, options traders and investors can
assess the potential risk and reward of options trades and make informed decisions about how to
manage their portfolios.

Black-scholes equations:

4551 summary:

https://www.cantorsparadise.com/the-black-scholes-formula-explained-9e05b7865d8a

limitations:

The underestimation of extreme moves in the stock, yielding tail risk

The assumption of instant, cost-less trading, yielding liquidity risk

The assumption of a stationary process, yielding volatility risk

The assumption of continuous time and trading, yielding gap risk

https://www.quantlib.org/

https://www.investopedia.com/terms/b/blackscholes.asp

https://medium.datadriveninvestor.com/black-scholes-and-option-greeks-in-python-6038f184801e
Monte-carlo simulation:

Dice example using python:

https://towardsdatascience.com/how-to-create-a-monte-carlo-simulation-using-python-c24634a0978a

General intro:

https://towardsdatascience.com/monte-carlo-simulation-a-practical-guide-85da45597f0e

Optimum strategy project implementations:

https://towardsdatascience.com/best-investment-portfolio-via-monte-carlo-simulation-in-python-
53286f3fe93

Highlights:

Identify all input components of the process and how do they interact e.g., do they sum up or subtract?

Define parameters of the distributions.

Sample from each of the distributions and integrate the results based on point 1.

Repeat the process as many times as you want.

DS converts to quant:

https://jonas-schroeder.medium.com/data-scientist-turning-quant-i-why-im-becoming-an-algo-trader-
28e852f9cfc4