2
votes
3answers
131 views

GARCH parameters

I'm trying to estimate parameters of GARCH(p,q) model. I tried p=1, q=1 with t-distribution errors. Ljung-Box showed no correlation in residuals and squared residual. But the null hypothesis that ...
0
votes
1answer
51 views

Compiling QuantLib example

I have followed the guidlines for installing QuantLib for mac from here http://quantlib.org/install/macosx.shtml and also fixed the flags using the commands: export CXXFLAGS = -stdlib=libstdc++ ...
0
votes
0answers
6 views

“Risk” Factor vs Bivariate Sorts

With regards to a cross-sectional asset pricing (stocks) study, I am testing if one variable can explain another. One common approach to do this, is to use the double-sorting portfolio technique (sort ...
0
votes
0answers
5 views

Is it possible to place hidden order inside spread when trading E-mini S&P 500?

My question is not about hidden orders in general. In equity market a trader can post his hidden order inside spread, is it the same way for E-mini S&P 500?
0
votes
0answers
7 views

Regression model extension

I've been asked to do out of sample procedure for my simple regression model. my dependent data is belong to 2500 index nad independent one is belong to 2500 stock log returned data. how should i ...
2
votes
1answer
96 views

SABR Implied Volatility and Option Prices

I am trying to understand SABR model. I am having difficulty to understand how to calibrate ABR a) the initial variance b) the volatility of variance c) the exponent for the forward rate d)the ...
0
votes
1answer
28 views

How is the fundamental theorem of asset pricing used?

I know that a multi-period market model is complete and arbitrage free if there's a unique equivalent martingale measure. The thing is, I have absolutely no clue how to apply this theorem to a simple ...
0
votes
2answers
112 views

How to automatically get all options data for a particular stock into microsoft excel?

I'm looking for a way to get the entire options chain (All options expiries) for a particular stock in excel without manually copy pasting anything. It does not have to be real time and I will only be ...
5
votes
1answer
229 views

Up and Down days in GBPUSD and a Filter

I want to study if the odds of an up or down day in a forex pairs is 50-50. I just count the total number of up and down days in X years and compare it with the total days. The results are very ...
0
votes
0answers
8 views

How to write time-varying functions in R? Applied example

Let's say I want to use a Gaussian copula $$C_{R_t}(\eta_1, ..., \eta_n) = N_{R_t}(N^{-1}(\eta_1), ...,N^{-1}(\eta_n))$$ with a time-varying correlation matrix $R_t$. Through DCC we model the ...
2
votes
1answer
95 views

VEC GARCH (1,1) for 4 time series

I have to estimate a VEC GARCH(1,1) model in R. I already tried rmgarch, fGarch, ccgarch, mgarch, tsDyn. Has somebody estimated a model like that? ...
0
votes
1answer
20 views

Python statsmodel ARMA question

I am reading through the documentation of statsmodel package in python from the link The (p,q) order of the model for the number of AR parameters, differences, and MA parameters to use. How do I ...
5
votes
1answer
154 views

DCC GARCH - Specificating of ARCH and GARCH parameter Matrices STATA

The command in STATA to calculate the DCC model of two variables is: mgarch dcc ( x1 x2=, noconstant) , arch(1) garch(1) distribution(t) $$ \begin{bmatrix} ...
5
votes
2answers
331 views

How to derive the price of a square-or-nothing call option?

At maturity $T$, the holder of a "square-or-nothing" call option written on an underlying $S_t$ receives a payoff of the form $$ \phi(S_T) = \frac{S_T^2}{K} \pmb{1}_{\{S_T \geq K\}} = ...
0
votes
0answers
11 views

How to build a cross currency swap pricer?

We're looking to build a pricer to convert a funding spread in a given currency over a specific funding basis e.g. 20 bps EUR 3m€ and convert it to a funding spread to a different currency with a ...
1
vote
1answer
51 views

Historical volatility from non-uniform samples

The way I compute historical volatility is that I take two parameters $dt$ and $T$, get a list of stock prices with the step of $dt$ over the window $T$ (so $T/dt+1$ samples in total), compute $T/dt$ ...
3
votes
1answer
37 views

What is the effect of mean-reversion on an upper barrier knock-out call option?

Consider a mean-reverting normal model for an underlying $dX^{(1)}_t=-\kappa X^{(1)}_tdt+\sigma^{(1)} dW^{(1)}_t$, for fixed time-independent constants, $\kappa$ (mean-reversion) and $\sigma^{(1)}$ ...
0
votes
0answers
14 views

Python regenerating ARMA params using statsmodels

I am trying to regenerate the ARMA parameters from statsmodel in python. The code I am using is: ...
9
votes
1answer
1k views

What are modern algorithms for trade classification?

When dealing with trade data, for example from TAQ, a common problem is that of determining whether a trade was a buy or a sell. The most commonly used classifier is the Lee-Ready algorithm (Inferring ...
3
votes
1answer
88 views

How to obtain Standardized Residuals from a Time-Series?

I have my estimates for an AR(3). To obtain the residuals I'm supposed to use $$Y_t-\hat\phi_0-\hat\phi_1Y_{t-1}-\hat\phi_2Y_{t-2}-\hat\phi_3Y_{t-3},$$ where the Y's are from the dataset. If I do ...
0
votes
0answers
10 views

Define the order of GARCH(m.s)

I know that if the order of Arch(m) is over 3, we should use GARCH and GARCH(1,1) was proved to be the best. But was GARCH(1,1) proved to be available for any country's stock market? My result show ...
0
votes
0answers
31 views

Option based approach to real capital structures

Has anyone made a serious attempt to apply option theory to real assets and capital structures, taking into account all the messy details ?
0
votes
0answers
14 views

Converting a factor vector in R

If I have a factor vector with 3 levels, "", "No" and "Yes" how can I convert this to a binary factor vector with "na" if no answer , 1 for "Yes" and 0 for "No" ?
1
vote
0answers
27 views

Is $(1,0,0,0,…,0)$ a legitimate dividend stream?

A book I am reading defines a positive linear functional as a "price functional" from a set of adapted processes to the real numbers. Specifically, it defines a "consistent price functional" as one ...
1
vote
0answers
20 views

$0$-beta stock and diversification

If we invest $w$ in the market portfolio and $1 - w$ in the risk-free asset, and observe a $0$-beta asset with expected return greater than the return on the risk-free asset, how can this be used in ...
1
vote
1answer
105 views

quantlib python : missing methods?

I'm reading Introduction to Selected Classes of the QuantLib Library I by Dimitri Reiswich and tries to "convert" it to Python. It seems to me that some C++ possibilities aren't available in python. ...
12
votes
4answers
2k views

How to estimate real-world probabilities

In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings. However, the behavior of ...
1
vote
1answer
55 views

Derivative: Delta of a Down and Out Call Option with Barrier=Debt(K)

I am trying to compute the derivative of this function with respect to V0: This is the price of a down and out call option, assuming the barrier equal to the level of debt K. In other terms, I need ...
5
votes
2answers
101 views

Interpret simulation results ($P$ and $Q$ measures)

I am struggling in interpreting results of my simulations. I use Monte Carlo algorithm to simulate stock paths and calculate option price. The notation: $r$ is a risk free interest rate, $T$ is time ...
-1
votes
0answers
15 views

Is the option payoff = exercise price = strike price [on hold]

This may be a somewhat arbitrary question, but in the Monte Carlo option pricing method, they talk about exercise price / option payoff. Is this equivalent to the strike price in the BSM model, ...
0
votes
1answer
8 views

anyone know haw would we calculate hml ,(fama and french three factors model) [on hold]

how we calculate hml and smb from our own data (malaysian data) so i can not use the dta from keneth french library using excel and when we divide firms into 6 portfolios we use value and book ratio ...
0
votes
0answers
12 views

R:log return calculation for panel data structure

I have a long form panel for hourly prices of stocks. I want to do log return calculation for this panel data structure. Below is my code: ...
1
vote
2answers
44 views

Correlation between asset A and Portfolio X (which contains A)

After a few hours trying to solve this I give up! I need help. I need to calculate the BETA of an asset with respect to a portfolio that contains this asset. I have the volatility and correlations ...
0
votes
2answers
27 views

What is a definition of “Benchmark”?

The word "benchmark" is often used in Finance, but in a rather fuzzy manner, there for a rough idea of what it is, and how it is 'defined'. Can someone provide a rigorous and precise definition of ...
0
votes
0answers
36 views

Physical interpretation of variance in returns in a portfolio design

I have a downloaded the log-returns at successive times of 98 stocks from S&P index over 753 days. I calculated the total daily return according to the formula 1 below, where ...
3
votes
1answer
77 views
+50

SVI negative rates

I've used the SVI model in the past for equity option which worekd quite well. I came across a post on Wilmott where someone said hes using SVI for swaption as well. I would like to test the model and ...
0
votes
1answer
13 views

Reference for option pricing, binomial multi-period model using martingales and conditional expectations

The title basically says it all. I am looking for a reference text on the pricing of options in a binomial multi-period model. It should be mathemathically rigorous using martingales and conditional ...
2
votes
2answers
42 views

Maximization with risk-neutral investors and VaR constraints

In this paper, the authors make a simple model with: (1) A global bank, who is risk-neutral but has a Value-at-Risk constraint: $$\max_{x_t^B} E_t[x_t^B\prime R_{t+1}]$$ s.t. $$\alpha ...
0
votes
1answer
40 views

Pricing foreign currency bonds - which approach is more theoretically “sound”?

You own a fixed rate corporate bond in foreign currency (let's say JPY). Your domestic currency is USD. Which of the these two approaches do you consider theoretically better? Discount JPY cash ...
0
votes
0answers
24 views

Is This A Viable Alternative Options Pricing Method?

i'm currently a high school student who hasn't gone past Algebra II, and thus I have minimal Calculus knowledge. I know the basics of Integration and Derivation (drop the coefficient, raise to the ...
-1
votes
0answers
38 views

How to define the return of this portfolio? [on hold]

I have an insurer with a some assets that he plans to invest into : Stock Zero-coupon bond with maturity 10 years We know also that the stock is driven by the geometric borwnian motion, the short ...
1
vote
1answer
144 views

Calculating historical implied volatility

I know that each individual option has it's own implied volatility, but how do you go about calculating the overall implied volatility for an underlying? For example when someone sais the IV of a ...
1
vote
1answer
52 views

Pricing a Vanilla swap between coupons; What rates to use?

Vanilla Swap question. Entered into a 5Y fixed for floating HUF swap. Fixed is annual coupons, Float is semi-annual coupons. 1 month later I want to price it. I set up my future values for Fixed ...
2
votes
2answers
172 views

Square of Wiener process

In Ito's calculus one often comes $dW^2=dt$. How does this come about? What is it's relation to the Milstein method?
0
votes
1answer
31 views

Preparation for interview: influx of power of the moon

I am preparing myself for an interview for a quantitative analyst position and one of the sample questions asked in previous examinations was: "Suppose the moon were to disintegrate, and fall to ...
0
votes
0answers
23 views

Arbitrage and completeness in multiperiod model?

Given a 2-period market with above stock price process along with a riskfree stock with a return of 5%, how do I determine whether the market is arbitrage-free and complete when I only have ...
0
votes
0answers
14 views

Estimate the risk of swaptions

I would like to model OTM Swaptions. I can use some implementation of the Bachelier model (not B76 due to negative rates) and implied volatilities from Bloomberg. For 10Y X 10Y (10 years option ...
0
votes
0answers
20 views

Black Litterman: Is it possible to have multiple views (from different sources) on the same asset?

From the basics of Black Litterman I understand that each view on a stock is implemented via the pick matrix P with the expected value of the views in Q. I have read several papers where each stock ...
1
vote
1answer
62 views

Calculating IR sensitivity

I'm trying to figure out how to find IR sensitivity of a bond whose time to maturity of a bond is 2 years. Bond pays 10.875 percent coupons yearly. Duration is 1.8 years. How do you find the ...
0
votes
2answers
100 views

Merton model riskless self-financing derivation

Suppose $dA_t = A_t[\mu dt+\sigma dW_t]$ (assets' value) under the physical measure, plus the other assumptions of the Merton model. Suppose further that debt and equity are tradeable assets that ...

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