# All Questions

136 views

### Some clarifications on eigenvectors and eigenvalues from PCA

Could somebody tell me whether suggestions in bold true or not? Q # 1: http://www.math.nyu.edu/faculty/avellane/AvellanedaLeeStatArb071108.pdf ...
40 views

### Statistics in finance

That's a reference request question. I have some decent knowledge of probability, stochastic processes and option theory, however I do not have a proper background in statistics. Now I am working ...
18 views

### Greeks with Monte Carlo simulation

I am simulating the path of three indices to price a 1 year basket option. All the indices are domestic, so there is no currency component. At each time step I am using the local volatility determined ...
208 views

### Why is that a risk averse consumer buys the optimum insurance when there is actuarially fair insurance?

I think I understand the fact that when marginal utilities of the same function are equal (a consequence of the actuarially fair insurance), the independent variables in it must be equal -- right? But ...
101 views
+100

### A model to stochastic hazard rate and CDS spread term structure

I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at $s$, maturity $T$ and recovery function ...
28 views

### What is the cheapest way to trade equities using a FIX connection? [on hold]

I would like to connect to an electronic exchange to run some simple statistical arbitrage strategies to trade equities. Of course this must be done from end-to-end electronically, in other words, I ...
784 views

### Copula models and the distribution of the sum of random variables without Monte Carlo

There is a vast literature on copula modelling. Using copulas I can describe the joint law of two (and more) random variables $X$ and $Y$, i.e. $F_{X,Y}(x,y)$. Very often in risk management (credit ...
7 views

### Calculate single swap PFE

I need to calculate the PFE for a single swap (not a portfolio). As far as I know a stochastic model is needed to simulate the interest rate curves (from here). I need suggestions on basic models ...
56 views

### Portfolio VaR with Copula?

Let the portfolio be given by: $$X=X_1+X_2$$ $(X_1,X_2)$ are dependent through a Copula function $C(u_1,u_2)$, such that the joint distribution is given by: $$F(x_1,x_2)=C(F(x_1),F(x_2))$$ What is ...
19 views

### Modified or Macauley Duration in python

are there any existing python modules that can calculate Modified and/or Macauley Duration of a bond.
79 views

### What are the dynamics of the reverse of this FX process?

Assuming the dynamics of the exchange rate between two currencies at time $t$ is given by: $$dX_t=\Delta r X_t dt+ σ X_t dW_t$$ Is the FX Reverse process $\frac{1}{X_t}$ a brownian motion? How can ...
18 views

### Get market cap by ticker on 1.7.2013?

I have a list of all S&P500 tickers, e.g. AAPL, GOOG, JPM. I would like to get their market cap on 1.7.2013 (I don't have Bloomberg, only free internet). Is there an excel addin or other ...
80 views

### Why doesn't Black-Scholes assume the absence of statistical arbitrage?

Both Black-Scholes and binomial model assume that there's no risk-free arbitrage in the market. But that sounds like a very weak condition. If a trading scheme makes you gain 100 dollars with 99% ...
78 views

### Is the volatility for these two SDEs the same

$$(1) \ \ d\left(\frac{1}{S_t}\right) =\frac{1}{S_t}\left(\sigma^2-r\right)dt +\frac{1}{S_t}\sigma dW_t$$ and $$(2) \ \ dS_t = S_t rdt + \sigma S_t dW_t$$ How can you prove that?
15 views

### Index for Hedge fund, Private Equity, Venture Capital

We have index for stock market, like S&P500, Nikkei 225, etc. I wonder if we have any index for hedge funds, private equity or venture capital?
31 views

### Cointegration results interpretation validation?

Here is how I am interpreting results of a Johansen Cointegration Test and Engel-Granger Test for A and B. The results:(Using matlab) ...
143 views

### Locked or Crossed Markets

I don't understand why Rule 610 from Reg NMS was introduced: what was the problem with locked markets? I have read that one of the issues is that it forced a market maker (say, from Nasdaq) who ...
50 views

### what volatility do we calculate using GARCH model

what volatility do we calculate using GARCH model, Historical vol or Implied vol or Future Vol or Actual vol.
29 views

### Implication of the Greeks under jump diffusion model

Consider jump diffusion model proposed by Merton and Kou. As far as i know, most paper only dealt the valuation of option under the jump diffusion model. As i expected, because of the ...
30 views

### negative probabilities in the bivariate tree heston model

I am trying to implement the bivariate tree approach for the Heston model by Beliavea & Nawalkha. I currently have the problem that given the specifications in their examples, I always obtain ...
26 views

### Why vertical skew is same for puts and calls

What is the reason that the vertical volatility skew graph(decreasing IV as the strikes increase) is the same for the puts and calls? The loose explanation is because of put call parity, but I am not ...
208 views

### List of 2008 NACE Rev 2 codes

Am looking for a simple list of the NACE 2008 rev 2 codes (The European classifications for economic sectors). The official publication is here, but is there an easily accessible list of the actual ...
66 views

### Quadratic exponential method (by Andersen) in Heston model

I am having trouble understanding the reasons that led Andersen to define his QE scheme to efficiently simulate Heston Stochastic volatility model (you may check the celebrated scheme here). The ...
111 views

### FX Rate dynamics

Let's suppose USD/EUR price in USD follows a GBM with $$dS_t = rS_tdt + \sigma S_tdW_t$$ What process does EUR/USD follow in EUR?
34 views

### Historical Implied Volatility Calculation

I'm trying to calculate implied volatility for the FTSE 100 for the last few years. I have all the end of day data from LIFFE for the last few years. I have combined the data by weighting the ...
183 views

### Intermarket analysis - related time series?

I'm about to embark on training a neural network on daily forex data, with a view to obtaining a predictive network. I'm also interested in using data other than the forex currency pair data itself, ...
78 views

### is there an accepted method for quantifying risk of inaccuracy of nascent trm systems?

Have a somewhat meta question here. I am part of a trading risk management implementation project. I also manage day to day risk reporting to management and the trading desks. Our implementation was ...
43 views

### Is the value also log-normally distributed?

Sorry if this is a stupid question. My book assumes many times that $log(1+R)$ is normally distributed, so R is log-normal. But does this also mean that the value process is log-normal? Since ...
30 views

### use synthetics for a pairs trading strategy

Let us say I want to pursue a pair trading strategy between stock A(long) and stock B(short). Can I replace this stocks with their synthetic option equivalents and have the same risk reward profile ...
36 views

44 views

### Why Statistical arbitrage is no logner useful [on hold]

Are there any white papers, articles that briefly explain why statistical arbitrage is no longer useful? Should I just buy the book by Andrew Pole?
59 views

### Why gamma for ATM option decreases as volatility increases

Why is the gamma for an at the money option less when volatility increases. Intuitively ,I thought that increasing volatility means more uncertainty,hence the option price will be more sensitive to ...
246 views

### Pricing options under restricted domain

How would I price an option when the underlying security is unable to trade above a certain price? I assumed this would be as simple as restricting the limits of integration of the PDF to B (the ...
122 views

### Relationship between Beta and Standard Deviation

I was doing some financial analysis on two firms in the coffee industry. After calculating Beta and Standard Deviation for both firms, I seem to have stumbled on some weird phenomenon. It appears ...
70 views

### Expected Shortfall and Spectral Risk Measure

Not sure I am understanding spectral risk measures correctly. Why is there an equal weighting scheme placed on the tail losses in expected shortfall. Will that no bias the expected value of the loss ...
62 views

### What math concepts are used in designing volatility models

What topics in statistics and mathematics do I need to understand thoroughly before I can start to dabble with stochastic volatility models and volatility arbitrage?
18 views

### Is it possible for two securities to have the same first 8 characters of a cusip, but differ in the check sum?

CUSIP is a 9 character long identifier. The last digit is a check sum checking the first 8 previous characters. This seems to me that it is not possible for two securities to have the same 8 ...
41 views

### Wholesale credit risk management

Trying to read up on "Wholesale credit risk ", can't find any useful references, why the emphasis on wholesale? - Any help greatly appreciated.
28 views

### Libor Market Model: numeraire change

I am currently studying the Libor forward market model, and although I get the mechanics behind the main arguments, I still do not have an intuitive idea of what's exactly the objective behind ...
26 views

### Overlapping Value-at-Risk Backtest Data an Issue?

My understanding of VaR model back testing is thus: ~~ t: Calculate daily VaR using look back data over n past days t+1: Compare daily return against VaR, record breach if one occurred, repeat ...
36 views

### Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
249 views

### How to price a Swing Option?

I'm working in the commodity market and I've to price Swing Options with MATLAB, preferably with finite element. Has anyone already priced these kind of derivatives? I'm thinking about using the ...
172 views

### Eurdollar Futures

Trying to understand the Eurdollar market a little better. I understand it's the market for dollar denominated deposits outside the US (not just in Europe). They are unregulated and not subject to ...
Consider the following m regression equation system: $$r^i = X^i \beta^i + \epsilon^i \;\;\; \text{for} \;i=1,2,3,..,n$$ where $r^i$ is a $(T\times 1)$ vector of the T observations of the dependent ...