On 15 February 2017, RMI hosted a talk for its MFE students by Dr. Suiunbek Ibraev, Head of Market Risk Quants at OCBC Bank. His talk titled, “Black 76: 40 Years Later,” discussed the evolution of the Black 76 model, a variant of the Black-Scholes model of option pricing. He began his talk with a brief overview of the financial markets and introduced the audience to the Bank of International Settlement’s (BIS) Triennial Central Bank Survey, which is believed to be the most comprehensive source of information for foreign exchange and over-the-counter (OTC) derivatives markets.
He shared results from the latest BIS survey done in 2016 showing the OTC FX and interest rates derivatives (IRD) turnover by countries including Singapore. He also shared results from the survey that showed the total market share of each country and compared Singapore’s OTC FX and IRD market growth with the global market growth. He then went into details of empirical distribution, the log-normal approximation, and its industrial and practical uses. In conclusion he argued that although new models are introduced, such as the displaced diffusion by Mark Rubinstein, local volatility by Bruno Dupire, and stochastic volatility by Heston, which go beyond the log-normal approximation, the Black-Scholes-Merton model using log-normal approximation is still very relevant to today’s market.
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