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"Alan White and I spent the next two or three years working together on this. We developed what is known a stochastic volatility model. This is a model where the volatility as well as the underlying asset price moves around in an unpredictable way."
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"There has been so much rubbish written up in the papers over the years."
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Personal Development
"I worked with Lawrence Olivier some years ago. He was a great mentor."
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"It took me years to figure out that you don't fall into a tub of butter, you jump for it."
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"I must have done everything I had. You go through years where you go through everything you've ever written."
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"For the last few years, it's been so chic for everybody to be miserable. Like if you're in with the cool crowd, you can't be happy."
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"I've been devoted to Alison Krauss for many, many years."
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"Best two rock voices I've heard in a last few years both have been from grunge bands: it's Eddie Vedder and the other one is Chris Cornell from Soundgarden."
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"I was very surprised that for a while I could only get cast as straight. It was that way for a few years."
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"Look at me, I'm getting defensive about something that happened so many years ago, somebody said. I'll have to find out who that was and if he's still alive."
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"I've been doing Tai Chi on and off for 20 years. The fundamentals of all martial arts are the same."
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"The HoLee model was the first term structure model. I remember reading their paper soon after it was published and as it was fairly different from many of the other papers that I had read, I had to read it quite a few times. I realized that it was a really important paper."
First
"In the interest rate area, traders have for a long time used a version of what is known as Black's model for European bond options; another version of the same model for caps and floors; and yet another version of the same model for European swap options."
Time
"There are challenges in terms of the measurement of VAR for what are known as nonlinear derivatives, where things like gamma and vega are important dimensions of the risk."
Risk
"If each of your time steps is one week long, you are not modeling the stock price terribly well over a one-week time period, because you are saying that there are only two possible outcomes."
Time
"Alan White and I spent the next two or three years working together on this. We developed what is known a stochastic volatility model. This is a model where the volatility as well as the underlying asset price moves around in an unpredictable way."
Years
"One important measurement issue concerns the fat tails problem that I mentioned earlier. VAR is concerned with extreme outcomes. If the tails of the probability distributions we are using are too thin, our VAR measures are likely to be too low."
Extreme
"Yes, our tree has an interesting shape. The center branches reflect the shape of the zero curve. When extreme parts of the tree are reached the branching pattern changes to accommodate the mean reversion."
Extreme
"We concluded that you cannot rely on delta hedging alone. It sounds simplistic to say that now, but back then, this was the sort of thing people were only just beginning to realize."
People
"Briefly speaking, our conclusion is that stochastic volatility does not make a huge difference as far as the pricing is concerned if you get the average volatility right. It makes a big difference as far as hedging is concerned."
Difference
"Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the rate is very low, it is upward."
Direction
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