What is a Carry Trade?

Carry trade is a strategy where the investor sells a low yielding currency and uses the money to invest in a high yielding currency. The low yielding currency is called the funding currency. The investor is trying to make the difference between the two rates. Although the difference may seem small, when leverage is taken... Continue reading

Value At Risk

What is Value-At-Risk? Value-at-Risk (VAR) is a statistical measure that risk managers/analysts use to quantify the amount of risk present in portfolio. Based on VAR values, decisions will be taken at firm-wide level, business-line level on how to reduce the risk present currently in the organisation. VAR is an important metric as it allows the... Continue reading


What is bootstrapping? Bootstrapping is a technique used to draw random items from a sample. It is widely used in simulations. For instance, it draws a sample from the data set for each simulation and based on the sample, the calculations are done. For each simulation, a different sample is drawn randomly but it is... Continue reading

Why Black-Scholes-Merton Model can't be used to value derivatives on Fixed Income.

In this post, we will be looking at why Black-Scholes-Merton Model can't be used to price derivatives on Fixed Income. Although Black-Scholes-Merton model is used widely in pricing derivatives on equity, it can't be used to price derivatives on fixed-income for three reasons. Three reasons: 1) Black-Scholes-Merton Model assumes that there is no upper limit... Continue reading