0
votes
0answers
16 views
Statistical models for exchange rates?
What stochastics processes (if any) are used to model currencies exchange rates
and how good are such models ?
References on subj. are also highly welcome.
7
votes
4answers
693 views
Sources of Machine Readable News
I'm starting on a project that involves correlating and forecasting Forex time series to news releases. I'm aware of sources such as Thomson Reuter's machine readable news and Dow Jone's Newswire ...
7
votes
4answers
6k views
What is the difference between Option Adjusted Spread (OAS) and Z-spread?
I am preparing for the CFA level 2 exam, I got confused by the concept Z-spread and OAS.
When a call option is added to a bond, since it is not favorable to the bond buyer, they would require more ...
3
votes
0answers
48 views
Papers about risk managment in algorithmic trading systems?
I am currently doing my research for my master thesis, which will clearly focus on the question of risk managment in algorithmic trading systems.
I have done research about this topic and found some ...
5
votes
1answer
153 views
VaR for portfolio of funds
Let's assume we need to calculate a 1-day VaR for a portfolio of funds. Funds are traded, they can be bought and sold every day. We know exactly what the assets in each fund are. What is the right way ...
1
vote
1answer
47 views
LIBOR Rates available in CSV, XML etc
Is there a website that offers current LIBOR rates for all tenors for free in machine readable formats?
3
votes
1answer
24 views
Different Exercise Style Options on Same Underlying
Some equities on European markets have options traded in two different exercise styles: American and European.
Examples:
ABB and ABB (european) on Eurex
Banco Santander on MEFF
Consider ...
-4
votes
0answers
32 views
Short Term Profits vs. Market Model [closed]
I want to calculate short term profits of multiple stocks. I guess market model does not work. Should I calculate raw returns?if yes, why?
The second is, as I mentioned before, I want to look a ...
0
votes
1answer
40 views
Which prices to use to compute realized volatility?
For computation of realized volatility, especially range based volatility, deal prices are commonly used.
If Level I data available should the deals data still be used or another measures of spot ...
2
votes
0answers
42 views
Discount of Asian vs European vols
I understand the discount for Asian vs. European vol depends on time to expiry and length of averaging period. This makes sense intuitively; a short averaging period far away blurs into a single ...
0
votes
2answers
52 views
IB TWS & API, without IB account?
I'll be starting a MFE grad program in Fall, and some of the classes have a lab that use the IB TWS & API. I'd like to play around with it for fun this summer. Unfortunately, I don't have an IB ...
0
votes
1answer
30 views
2
votes
1answer
46 views
Are there any good benchmarks for performance of vanilla option pricing code?
I've seen parsec (http://parsec.cs.princeton.edu/index.htm), which has a PDE pricing component, but the distribution is enormous and I haven't bothered to try to download it for review. I'm ...
8
votes
1answer
112 views
So many volatility models. Any comparisons of them?
Are there any papers that make an explicit contrast/comparison of the following (or other) vol models in terms of the suitability for addressing some empirical problem?
Wavelet multiresolution ...
0
votes
1answer
29 views
How to adjust local currency returns to US$/EUR return?
Iam doing research on return characteristics. As of today the scope of the research has changed from a local investor point of view to an international investor point of view. This basically means ...
2
votes
1answer
183 views
Implied Volatility for Asian option
I am new to the topic of Asian options. Assume I want to price an Asian put (fixed strike, discrete average) in the Black Scholes world. I know implementations to calculate the value but what is the ...
6
votes
1answer
137 views
+50
Is Unexpected Loss ever used in Basel II?
In Basel II, EL is useful. It's calculated as
$$EL = PD \cdot EAD \cdot LGD $$
in advance IRB (internal rate-based approach),
Correlation
$$R = 0.12 \frac{1 – e^{-50 \cdot PD}}{1 – e^{-50}}
+ 0.24 ...
-4
votes
0answers
22 views
discount factor question [closed]
really confused about this question, can someone please answer
A project requires \$10 million dollars in initial investment. The projected revenue is $3 million dollars per year for the next 5 ...
5
votes
4answers
412 views
How to optimize a portfolio under *both* maximum diversity ratio and minimum variance
I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question.
My question is: how can I optimize a portfolio to suit ...
-4
votes
0answers
33 views
Why are call options needed? [duplicate]
My question is actually less ambitious and more specific then the title may have lead you to believe.
Suppose the interest rate is $25\%$ you have a stock at time zero price of $S_0=50$ and at time 1 ...
5
votes
5answers
645 views
Mapping symbols between tickers, Reuters RICs and Bloomberg tickers
Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example:
Ticker: AAPL
Reuters: RSF.ANY.AAPL.OQ
Bloomberg: AAPL US Equity
...
4
votes
5answers
557 views
Call vs. Put Option
I have two interrelated questions that have been bothering me for some time. I have read all the stuff online and it still doesn't make sense to me:
Let us assume:
0% interest rate (both hedge ...
12
votes
1answer
267 views
Parameter estimation of Ornstein–Uhlenbeck and CIR processes
I would like to estimate Ornstein–Uhlenbeck process' parameters via Kalman filter.
My process is the following one:
$\text{d}x_{t}=\alpha(\theta-x_{t})\text{d}t+\sigma\text{d}W_{t}$
I'm interested ...
6
votes
1answer
114 views
characterization of coherent risk measures
Suppose we are given a coherent risk measure $\rho:L^0\to\mathbb{R}$. Our probability space is taken finite, i.e. $\Omega:=\{\omega_1,\dots,\omega_n\}$ and carrying a probability measure $P$. With ...
-1
votes
2answers
120 views
What's the first time-integral of price called?
In general I'm wondering about the names of time-derivatives of price.
E.g. in physics the first few time-derivatives of position are:
f(x) = displacement
f'(x) = velocity
f''(x) = acceleration
...
2
votes
3answers
415 views
How to annualize dividends paid at varying intervals?
I am attempting to write a function that will calculate the annualized rate of return for individual dividends made by illiquid investments. These dividends are paid at varying intervals and the ...
12
votes
4answers
5k views
Why are GARCH models used to forecast volatility if residuals are often correlated?
The answers to this question on forecast assessment suggest that if the sequence of residuals from the forecast are not properly independent, then the model is missing something and further changes ...
3
votes
2answers
161 views
If the distribution of returns in symmetric, why not use a coin toss, small risk & high reward?
If the distribution of returns is symmetric then why not
use a coin toss to decide whether to buy or sell
Calculate the average velocity of the market (ATR - in technical analysis)
Place a stop ...
3
votes
1answer
116 views
Replicating strategy in the Black-Scholes model
I have a two-asset Black-Scholes model for a financial market:
$dB_t=B_t r dt$
$dS_t=S_t(\mu dt+\sigma dW_t)$
I introduce a European claim $\xi=max(K,S_T)$ with maturity $T$, for some fixed $K$. I ...
1
vote
1answer
134 views
Cointegration tests
I'm trying to figure out how to perform cointegration tests in R between 2 time series. I'm using po.test from the package ...
23
votes
4answers
924 views
Are there any new Option pricing models?
Back in the mid 90's I used the Black-Scholes Model and the Cox-Ross-Rubenstein (Binomial) Model's to price Options. That was nearly 15 years ago and I was wondering if there are any new models being ...
-1
votes
1answer
75 views
Quality of GAINDATA timestamps
Does anyone have a view on the quality of the timestamping of GAINCAPITAL's free historical data.
There is non-FX data there and I wonder if the timestamps are in sync?
3
votes
2answers
336 views
price of a “Cash-or-nothing binary call option”
I'm stuck with one homework problem here:
Assume there is a geometric Brownian motion \begin{equation} dS_t=\mu S_t dt + \sigma S_t dW_t \end{equation} Assume the stock pays
dividend, with the ...
1
vote
2answers
172 views
How is historical data for forex collected or computed?
I'm looking at four sources of forex data, as compiled in the question, What data sources are available online? And I think I must be misunderstanding something, perhaps something fundamental, but I'm ...
1
vote
2answers
301 views
Early execise of American Call on Non-Dividend paying stock.
Let us consider an American call option with strike price K and the time to maturity be T. Assume that the underlying stock does not pay any dividend. Let the price of this call option is C$^a$ today ...
3
votes
1answer
110 views
When the Inverse Correlation between the SPX and VIX breaks down
As we all know the S&P and its implied vol, the VIX, generally move in opposite direction. To a large extent, the correlations makes sense. IV is one of the main drivers of the price of options, ...
3
votes
0answers
49 views
Optimal mortgage rate strategy
When buying a mortgage, you can choose to "lock in" a rate at any point within 60 days of your closing date. Once locked in, you can't revert.
This makes it a secretary problem - in the traditional ...
3
votes
1answer
77 views
Desired portfolio volume
I am working on a toy model, in part of which an investor has to decide (based on some utility theory) how much money to invest in a given portfolio. For simplicity, assume that the portfolio is ...
1
vote
0answers
84 views
Market Exposure and Hedging
Normally the Market exposure associated with your stock/portfolio is your delta for that stock/ portfolio. Basic idea of hedging involved here is buying/selling respective futures depending upon ...
5
votes
0answers
92 views
How to prove that markets are incomplete under the Stochastic Volatility model?
Has anyone ever formally proved that Markets are incomplete under the stochastic volatility model?
I know that if there are more random sources than traded assets, then the market is incomplete but ...
5
votes
2answers
154 views
Best tool to generate cashflow diagrams
I often have to generate cashflow diagrams.
I was wondering if anyone has a good tool to generate them in either $\LaTeX$ or a picture?
0
votes
0answers
45 views
R Outputs from Johansen test. Linear combination still not stationary?
I am trying to see if house price is cointegrated with interest rate, per capita income and rental vacancy rate and got the following output from ca.jo in R:
...
1
vote
1answer
107 views
Add transaction costs to prediction
An algorithm predicts price movement by some certainty and it invests proportional to the confidence level. Predictions range from -1 to +1, -1 meaning sell for a value of ...
0
votes
0answers
50 views
Exact value of mean reversion rate knowing terminal value of the process
Let you have the following mean reverting process:
$\text{d}x_{t}=a(\theta-x_{t})\text{d}t$,
where the diffusion term is absent, that is this process is not stochastic.
Let you know the value of ...
6
votes
4answers
497 views
Threshold calculation for buying a mean-reverting asset
I am trying to figure-out an optimal policy for buying a unit when its price follows a mean-reverting price process (Ornstein–Uhlenbeck), when I have a finite time deadline for buying the unit.
I ...
3
votes
0answers
76 views
Is it random walk?
I would like to ask a question about random walk. Campbell, Lo & Mackinlay defined the random walk, in the following way (RW3):
$$
cov[f(r_{t}),g(r_{t+k})]=0,\qquad k\neq0
$$
for all $f(\cdot)$ ...
-4
votes
0answers
63 views
Why was SSF and Futures on Stocks Banned in US Until Recently [closed]
I have heard that Futures on Stocks were not allowed in US until recently. What is the rationale behind this?
5
votes
3answers
447 views
How to use Itô's formula to deduce that a stochastic process is a martingale?
I'm working through different books about financial mathematics and solving some problems I get stuck.
Suppose you define an arbitrary stochastic process, for example
$ X_t := W_t^8-8t $ where $ W_t ...
1
vote
1answer
64 views
What are the differences between CFD and SSF?
What are the intricate differences between SSF and CFD?
The similarities are that both take into account interest and settled daily thus looks more or less the same pima facie.
4
votes
1answer
116 views
Covariance of brownian motion and its time average
It's a question pertaining to the correlation of a log asset process (following BM) and its time average, to put it into form, if
$$X(t)=\mu t+\sigma W(t)$$
then
$$ ...
