Author Archives: Harbourfront Technologies

About Harbourfront Technologies

We are a boutique financial service firm specializing in quantitative analysis and risk management. We combine the power of traditional structured finance with modern high performance computing in order to deliver unique solutions to our customers. Our clients range from asset management firms to industrial, non-financial companies. Visit http://tech.harbourfronts.com to learn more about us.

Is Asset Dynamics Priced In Correctly by Black-Scholes-Merton Model?

A lot of research has been devoted to answering the question: do options price in the volatility risks correctly? The most noteworthy phenomenon (or bias) is called the volatility risk premium, i.e. options implied volatilities tend to overestimate future realized … Continue reading

Posted in Uncategorized | Leave a comment

Valuing a Fixed Rate Bond-Derivative Pricing in Python

Debt instruments are an important part of the capital market.  In this post, we are going to provide an example of pricing a fixed-rate bond. A fixed rate bond is a long term debt paper that carries a predetermined interest … Continue reading

Posted in Uncategorized | Leave a comment

Merton Credit Risk Model, a Case Study

In a previous post entitled Credit Risk Management Using Merton Model we provided a brief theoretical description of the Merton structural credit risk model. Note that, The Merton model is an analysis model – named after economist Robert C. Merton … Continue reading

Posted in Uncategorized | Leave a comment

Interest Rate Swap-Derivative Pricing in Excel

An interest rate swap (IRS) is a financial derivative instrument that involves an exchange of a fixed interest rate for a floating interest rate.  More specifically, An interest rate swap’s (IRS’s) effective description is a derivative contract, agreed between two … Continue reading

Posted in Uncategorized | Leave a comment

Valuing an American Option Using Binomial Tree-Derivative Pricing in Excel

In a previous post, we provided an example of pricing American options using an analytical approximation. Such a pricing model is fast and accurate enough for risk management purposes. However, sometimes more accurate results are required. For this purpose, the … Continue reading

Posted in Uncategorized | Leave a comment

Credit Risk Management Using Merton Model

R. Merton published a seminal paper [1] that laid the foundation for the development of structural credit risk models. In this post, we’re going to provide an example of how it can be used for managing credit risks. Within the … Continue reading

Posted in Uncategorized | Leave a comment

Valuing an American Option-Derivative Pricing in Excel

In the previous installment, we presented a concrete example of pricing a European option. In this follow-up post we are going to provide an example of valuing American options. The key difference between American and European options relates to when … Continue reading

Posted in Uncategorized | Leave a comment