Questions tagged [equities]
Shares of stock traded in a stock market. Equities represent the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid.
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Autocallables - valuation/modelling/booking
Recently heard a view on how one should model/book autocallable swaps (in its basic form where there is a series of observation dates on which the product autocalls and there is exposure to the ...
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Autocall Selling Process [closed]
I'm new in structured products and I need some help for understanding some stuff on autocall.
When a client gives his money to the bank for investing in an Autocall, this money goes in a ZCB and in ...
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Markout PnL why looking in the past [closed]
Most of the time to analyze a strategy people will take all the trades and look at the PnL a certain markouts. Yet I don't understand why so many people look at negative markouts?
What can infer from ...
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Cross corridor var swap
How should I think about replicating a cross corridor variance swap like breaking into strips of calls and puts and an over hedge that I can rebalance at some frequency? Given the earnings move, I can ...
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How to interpret the turnover formula?
How would one interpret the below turnover formula ignoring the average from each time period i.e., what is the meaning of the term inside the brackets?
Reference: Empirical Asset Pricing via Machine ...
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In which context do hedge funds use the Gauss Markov Theorem?
Hedge Funds really like asking questions about linear regression during interviews. Especially about the properties of the OLS. But I don't understand in which context this is used. For example the ...
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What is the current state of the art method to predict the equity risk premium one month ahead?
I am aware of Goyal, Welch and Zafirov's paper A Comprehensive 2022 Look at the Empirical Performance of Equity Premium Prediction that seems to imply there is nothing one can do to predict the return ...
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questions after reading the article by knuteson
I recently read this article by Knuteson and some thought/questions arose.
So I was wondering if anyone read it or wants to read it and can comment on
a few statements-questions below. I could ...
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Rigorous formula for adjusted close price
I'm a mathematician who is new to the stock market, and I'm hoping to shine a rigorous light on a simple example of adjusting close prices for, say, dividends.
Let time $t$ represent today. Say that ...
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Average correlations of stock returns
Say I had a pool of companies (specifically the Latin American Countries). The task was to work out the 'Correlation coefficient between the returns of any 2 companies selected from "different ...
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How to calculate holding period return of a long-short strategy?
I have daily close prices of two stocks, A and B. Suppose that we long stock A and short stock B. Assume that we do the long-short every day and hold that portfolio for some days. How to calculate ...
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How do I measure the "dispersions" of a group of stock returns
I have $n$ stock return time series $X_1, X_2, ... X_n$. I want to measure how much they have "dispersed" over time. i.e. are they moving "more together" in 2023, comparing to 2022....
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Combining trading signals (equity long/short strategy)
Currently, I have developed three separate trading strategies on equity securities.
All involve taking long and short positions in the top and bottom decile with respect to some measure (say, a ...
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What is the purpose of a floating interest rate leg on an autocallable equity swap transaction?
I understand that the purpose of the equity leg is to hedge the issuers exposure under the note but I don't understand why the buyer of an autocallable equity swap pays a fixed fee at the beginning of ...
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Is it possible to exchange one stock for another without cash as an intermediary?
According to my research, it is possible to exchange one stock for another without selling to cash and then buying the other. The process is known as a "stock-for-stock" or "share-for-...
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Convertible Bond Option - Yield analyzis
The following problem can be understood as an extension/modification of the textbook example of Hull (Options, Futures and other derivatives, chapter 27.4, 9th Edition), which is related to ...
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Option-like behaviour of momentum strategy
this may come as rather vague question, since I do not have something very exact issue on my mind. Nevertheless, I think this is an interesting question and must have been thought by some other people ...
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Relationship Between the Equity Funding Curve and Equity Forward Curve
am trying to understand the core concepts of Equity Forwards Curve, Funding Curve and yield Curves (most sources online seem to focus on Interest rate related examples, so any sources for equity ...
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Bound on path length of a stock price
Consider a time series $(S_i)$ representing a stock price (say close prices of one minute candles). Let $\Delta$ be a quantization step (could be the price step in the strike prices of the ...
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Marginal effect of asset in a strategy
Im trying to develop a stastical arbitrage strategy that depends on a universe of assets and in a brief way, they replicate some factor(s), index(s), etf(s), etc, and then trade residuals. So, after ...
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Purpose of equity listing?
I have a simple question on US stock market: what is the purpose of listing a stock to a specific exchange given that it can be traded on multiple exchanges?
For example, apple stock (AAPL) is listed ...
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Should I resolve factor collinearity before hedging?
Goal: I want to run a portfolio, daily or weekly rebalanced, with a target idio vol %. Thus I will be market neutral, sector neutral and maintain some style exposure at 70-80% idio overall.
Okay, this ...
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Risk adjusted returns for a portfolio relative to CAPM
This is very likely a simple question. When following Lewellen (2015) (open access here), how should I compute alphas for portfolio returns relative to the CAPM and FF3? Do we simply subtract the (...
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FM regressions for size groups when examining a cross section of expected stock returns
When doing FM regressions for size groups similar to Lewellen (2015) (open access here), should I obtain the cross sectional rolling return window betas using only the size group? (E.g only use large ...
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Power-utility function for calculating Certainty equivalent
I have a question regarding how i should calculate 3.2-3.4, currently studying for an exam. What i don't get is how to acctually derive the certainty equivalent from the expected utility of gross ...
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Why stock beta is not equal to its index weight?
Index is a linear combination of stock prices with known weights. In case index is equally weighted, the weights are fixed. Beta measures stock sensitivity to index - by how much stock moves when ...
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If investors are risk-neutral, should the (equity) risk premium be zero?
I looked up ChatGPT and they stated that the (equity) risk premium should be zero for a risk-neutral world. The definition of a risk-neutral investor is that one is indifferent between additional or ...
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If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?
I know that it is not possible to back out an IV for a stock, because the concept of IV is based on a model with underlying assumptions applied to pricing an option.
I was thinking of why IV is ...
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Why does cost of borrow have anything to do with the equity forward price?
By non-arbitrage, you buy the stock and hold it to the delivery date of the forward, only cost of funding (of cash) and equity dividend would be involved in the equity forward calculation. Where does ...
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A term to compare 2 stocks based on simultaneous trending and ranging characteristics
There a 2 stocks called A and B. We take a look at the daily chart of both stocks over the last 1 year. On 90% of the days A and B both trended or at least one of A or B trended. On 10% of days both ...
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Should I use common equity or total equity for book value? (when replicating Lewellen's 2015 paper on a cross section of expected stock returns)
I'd hereby would like to ask if any of you know whether I should use common equity or the total equity value, when computing monthly BM ratio's as done by Lewellen is his 2015 paper on a cross section ...
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Calibration of Covariance Matrix for a Cumulative Period Return
I am trying to compute optimized weights (minimum-variance portfolio) for a cumulative return over a period (weekly or fortnightly). In a daily return setting, it is quite simple, I just compute a ...
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Do Dividend Stocks Offer Better Resilience During Market P/E Contraction?
I'm interested in how stocks with higher dividend yields perform during periods of market P/E contraction. Specifically, I've observed that (so far I am working on the models):
Market-wide P/E ...
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Seeking a Model to Extrapolate Locate Fees for Short Selling in Absence of Historical Data
I'm in the process of developing an automated stock trading algorithm, with short selling being a significant part of the strategy. A key factor in deciding whether to short a stock is the associated &...
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Why do we adjust the drift in the geometric brownian motion
I am building a monte carlo based on the GMB, and I am having a hard time understanding why we subtract 1/2 variance from the drift. If I have a drift of 12% and a volatility of 50%, that would give ...
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Compounding vs Annualizing Returns in a Portfolio Optimization Context
This might be a rather basic question that might be closed... but I can't for the life of me understand why in many Google search results the annualization of daily returns is done like this:
r_yearly ...
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equities hedging betas for a cross-sectional risk model
This question is on equities risk models. I would like to know how to define betas when using a cross-sectional regression approach, rather than the time series approach. My goal is beta hedging of a ...
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How is an equity TRS reflected on a balance sheet?
Suppose there is a hedge fund with with USD 50M cash and the balance sheet is below.
Asset: 50M Liability: 0 Partner's Capital: 50M
If the hedge fund executed a USD 100M notional TRS with 25% IA (USD ...
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How can this problem be defined formally?
Let's consider a straightforward example in which I possess a portfolio consisting of two stocks:
$
R(t) = S_{1}(t) \cdot x_1 + S_{2}(t) \cdot x_2,
$
Here, $t$ represents the time index, $R(t)$ ...
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Expected slippage based on % of average daily trading volume
I have started a quant strategy that buys and sells thousands of stocks. Each trade represents <1% of average daily trading volume. On average, the trades represent around 0.1% of ADTV.
What is a ...
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Why must the forward price be equal to the expected value for an underlying security [closed]
In page 59 of his book Option Volatility and Pricing, Natenberg argues that the forward price of an underlying security is essentially the market's consensus expected value for that security, ...
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Selection of Risk aversion in portfolio optimization
I have a portfolio of equities with a cross-sectional score as expected return (mean=0) and am using mean-variance optimization. However, the question is how one selects the risk aversion parameter. ...
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For a university project I need the historical number of outstanding shares for all companies currently in the S&P 500
Up until now I have been using the yahoo finance api which provides lots of data already that I can use for my analysis. Unfortunately I need the historical number of outstanding shares for multiple ...
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What happened when market status change from pre-market trading hours to standard trading hours?
Now we can place orders in pre-market trading hours, from 4 am to 9:30 am. And then we go into standard trading hours, 9:30 am to 4:30 pm. But I wonder then when will the Market Order Auction happen?
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Monte-Carlo method for multi-asset pricing
As I was working on this paper https://hal.science/hal-00319947/document by Emmanuel Gobet, I came across this paragraph that says to price a barrier option on (for example) two correlated assets, you ...
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equities industry factor models
I am looking for references or practical solutions for the following. In the usual factor approach for equities with panel data regression (for each stock, explain future returns given stock ...
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Calibration of LSV models to vanna/volga break-even
In this paper, Labordère, the author computes a probabilistic representation of the the vanna/vomma(volga) break-even levels. He mentions that they can be used to calibrate LSV models to historical ...
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Why do we need an ex-dividend date? [closed]
Why do we need an ex-dividend date? What is the problem with the ex-dividend date being the same as the payment date? Why are they separate? What problem does having a separate ex-dividend date solve?
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How to approximate a function in the H-model
I have been looking to understand the H-model in finance, that is used for stock price valuation. In particular, I wanted to formally derive the final formula:
$$PV=\frac{D}{r-g_2}\left[1+g_2+\frac{H}{...
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If the price of a stock follows a Geometric Brownian motion, then does stock return depends on past stock returns? [closed]
Got this question from my homework. I think if past returns are keep raising then current return should also be positive, but the answer is it's not related to past returns, why?
I tried to ask ...