FRIDAY, April 11, 2003
Time: 2:00 - 3:00 PM
Constant Hall 1052

Dr. Paul Staneski
UBS Warburg

A fair die is to be tossed 4 times. Define F (the Forward) as the sum after the 4 rolls. Before tossing begins, where should the Forward be trading? That is, what is the .fair. price you would pay to get the actual sum (say, at $1 per point) after the 4 rolls? Okay, (hopefully) that was easy. Now, what would you pay for the 17 Call, which is the right to buy the Forward for 17 after the 4 rolls? That is, what would you pay now for the option to pay 17 and get the actual sum after the 4 rolls? Where is the 17 Put trading? What is the relationship between the values of the 17C and 17P? After establishing these values (setting the market), suppose the first roll is a 2. Where is everything trading now?

In this (interactive!) talk, we will investigate both some of the theory and mechanics of option market-making via a mock trading exercise like that suggested above.

Presenter: Paul Staneski is a 1990 Ph.D. statistics graduate of the Department and is currently employed by UBS, which (with over $750 billion in assets) is one of the 5 largest banks in the world. Paul is a member of the Financial Markets Education group, a small (10 professionals) team of experts who do both internal training and client education for the Bank, primarily about derivatives valuation, trading strategies, and risk management. Prior to joining this group, Paul spent 4 years in the Quantitative Research Department of the Bank working on derivatives valuation models.