In this article, let’s look at a quick way to model a limit order book (LOB). I will rely heavily on C. Lehalle’s paper: Simulating and analyzing order book data: The queue-reactive model (2014).

Market makers or dealers are merchants who make money by buying low and selling high. They must set prices, market their services to acquire clients, manage their inventories, and they must be careful that they do not trade with better-informed traders.

During my 2019 Fall internship at Goldman Sachs, I worked in the Corporate Treasury division. The role of that division is to provide appropriate funding to support all-firm wide activity. In particular, it extensively uses the repo markets in order to do that. So what do repo markets do?

Finite difference methods value a derivative by solving the differential equation that the derivative satisfies. Consider an American put option on a stock paying a dividend yield of $q$. The associated Black-Scholes equation is:

Let’s look in this article at how insurance can be a win-win deal. Consider a property owner who has a utility of wealth function $u(w)$. The owner faces a possible loss due to random events that may damage the property. The distribution of the loss $X$ is assumed to be known. According to utility theory, the owner will be indifferent between paying an amount $G$ to the insurer, who will assume the random financial loss, and assuming the risk himself if:

I studied Linear Regression in college, but oftentimes I have to admit I was memorizing equations such as: $\beta = (X’X)^{-1}X’Y$ or that the formula for the variance-covariance matrix was $\sigma^2(X’X)^{-1}$. Recently, while reading the book of P. Kennedy A Guide to Econometrics (Chap. 3), I discovered the concept of Ballentine Venn diagram. It allows an intuitive understanding of Linear Regression.

Ok, first post. Dear visitor, welcome on this blog! I procrastinated months and months thinking about the perfect article to start this blog. I started reading books and books to brainstorm ideas. But the truth is, there is no perfect article. The secret of life is to simply start, then learn (instead of the reverse). Embrace your mistakes along the way and evolve.