Two valuable skills which took me years to perform well

Priority setting

Priority setting is the process of determining which tasks are most important. While it's not hard to be busy and crank out the tasks on my to-do list, it's difficult to choose to do the important things - to live my life by priorities.

Compared to some suggestions of setting daily priorities, I consider a long term target to be more important and useful. First, a long term target can help us focus and achieve a not easy target during a long time. Second, with a long term target in mind, it is easy and natural to know what I need to do in a daily base. For example, when I entered financial engineering program at the University of Illinois, I set my first semester’s target to be building knowledge base of quantitative finance. This easily led me to focus on my coursework and FRM exam every day during that semester.

The history of 2010 Flash Crash

By Dongliang “Larry” Yi

Background

The 2010 Flash Crash was a US stock market crash, which started at 2:32 pm, May 6th EDT and lasted for approximately 36 minutes. The Dow Jones Industrial Average experienced its largest intraday point drop, plunging 998.5 points (about 9%) from the opening, most within minutes, only to recover a large part of the loss^[1]. Other stock indexes, such as S&P 500, Russell 3000 and Nasdaq Composite, also collapsed and rebounded very quickly. This market crash immediately caused trillion-dollar market loss, and recovered most of the value at the close. Some blue-chip stocks, like Procter & Gamble, traded as low as $0.01^[2], but closed at $60.75.   

Lehman Brothers in the 2007-08 Financial Crisis

Wrote by Dongliang "Larry" Yi on Nov. 18, 2015

1.     Economic Crisis, Financial Crisis or Credit Crisis?

When the 2007-08 Financial Crisis is first reported in China, I was a graduate student who is interest in the business world. The first concern of mine is that it may affect my job hunting. So, what is 2007-08 Crisis, and the influences on the financial industry?

1.1 Chain Effect

First, the name of this crisis. Generally, we use ’Economic Crisis’ for those depressed periods of capitalist countries. But this time, most media call it financial crisis, or credit crisis. The key reason is that this time, the most affected industry is concentrated in financial industry, and the incentive of this crisis is the credit issue in housing market.

Second, the credit risk. Although US has a great credit system compared to China, it also has credit risks. To be frank, there are still a lot of people in US do not deliver their commitment in Loan. To start with, we need to know the housing bubble of US before talking about this crisis. The US housing market experienced high growth after the stock market crash in 2000. The subprime loans had increased 292% from 332 million in 2003 to 1.3 trillion in 2007^[1]. When the housing price crashed in 2007, many subprime loads went to default and caused a chain results. ^[8]

What everyone is saying about CCAR?

By Dongliang “Larry” Yi

       

The Origin of CCAR

The 2008 financial crisis is considered to be the worst financial crisis since the Great Depression of the 1930s. ^[1] It caused banks to be acquired or bankrupted, including Lehman Brothers and Merrill Lynch. Concerns on bank solvency, falls in credit availability and impaired investor confidence affected worldwide equity markets, where investors experienced huge losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade dropped. US government bailout banks and prevented the collapse of US financial system. ^[2]

This bailout is called Troubled Asset Relief Program (TARP) in which US government purchased toxic assets from financial institutions to help stabilize the US financial system and restart economic growth. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was passed to protect money spent in TARP. ^[2] In Nov. 2011, Comprehensive Capital Analysis and Review (CCAR) is introduced by the Federal Reserve in order to measure, regulate, and supervise large Bank Holding Companies (BHCs). ^[3] The Federal Reserve want to ensure that BHCs have vigorous processes for determining how much capital they need to maintain access to funding and continue to function as credit intermediaries, even under adverse situations. ^[4]

   

Pricing American-Options Using the Trinomial Model with Memoization

By Dongliang “Larry” Yi

1. Code

//  main.cpp

//  American_Option_Tri_Memoi

//

//  Created by Dongliang Yi on 11/23/15.

//  Copyright © 2015 Dongliang Yi. All rights reserved.

//

Value-at-Risk Computed Using Various Methods (Historical Simulation, Delta-normal method, Delta-Normal method using the exponentially weighted covariance estimator, Historical simulation using rescaled returns)

By Dongliang “Larry” Yi

Problem:

1.     Historical Simulation

#thousand.000

VaR <- vector("numeric", length=246)

for (i in 1:246)

{

PLGBP = (1000/(data$GBPUSD[i:(i+1999)]*data$UKX[i:(i+1999)]))*data$GBPUSD[(i+1):(i+2000)]*data$UKX[(i+1):(i+2000)]-1000

Key words in “Quantitative Analyst” job postings

By Dongliang “Larry” Yi

Objective: To find most required skills/abilities related to the job of “Quantitative Analyst”

Total Job postings: 13 (Citi, Morgan Stanley, US Bank, Fitch, S&P, Bloomberg, BoA)

Most mentioned skills/abilities:

Programing Skills: 12 times

            C++: specifically mentioned 7 times

Key words in “Risk Analyst” job postings

By Dongliang “Larry” Yi

Objective: To find most required skills/abilities related to the job of “Risk Analyst”

Total number of Job postings: 7 (from Goldman Sachs, Morgan Stanley, US Bank and Citi)

Most mentioned skills/abilities:

Programing Skills: 7 times

            C++: specifically mentioned 4 times

Quantitative Methods for Asian Option Pricing (in C+)

Question:

Below is the analysis report:

Quantitative Methods for Asian Option Pricing

By Dongliang “Larry” Yi

Securities Valuation through NGARCH(1,1), DCC(1,1) and Monte Carlo (in R)

By Dongliang “Larry” Yi

In this article, I used NGARCH(1,1) and DCC(1,1) in correlation and variance prediction of every two indexes’ daily return, then I used Monte Carlo in generating a new daily return. I repeated this process many times and get a prediction of two indexes at Aug. 10^th 2015. The current day is Aug. 5^th 2014.

1.    Securities for pricing

Why we say 1987 Market Crash is caused by derivatives?

By Dongliang “Larry” Yi

Black Monday

On Oct. 19^th, 1987, Dow Jones Industrial Average(DJIA) fell 508.53 points from 2247.27 to 1738.74, which is equal to a 22.61% one-day loss. Until now, it is considered to be the largest one-day percentage decline in the DJIA history^[1][2]. The S&P 500 Index lost 20.5% of its value and the NASDAQ lost 11.3% during the same day^[3].