0
votes
1answer
28 views

Build spot rate curve with multiple treasuries for each maturity

I have the following treasuries: T 0 1/4 01/31/15 at 100.1236 T 2 1/4 01/31/15 at 101.1257 T 0 1/4 02/15/15 at 100.1251 T 4 02/15/15 at 101.9994 T 11 1/4 02/15/15 at 105.6269 T 0 1/4 02/28/15 at ...
9
votes
3answers
371 views

Is R being replaced by Python at quant desks?

I know the title sounds a little extreme but I wonder whether R is phased out by a lot of quant desks at sell side banks as well as hedge funds in favor of Python. I get the impression that with ...
1
vote
1answer
71 views

Building curves using onshore or offshore JPY overnight rates?

I am trying to build Japanese Yen interest rate curves. When defining the curve instruments for the 'OIS' (discount) curve (aka TONAR), I am uncertain as to which rate to use for the overnight deposit ...
5
votes
2answers
311 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 ...
0
votes
0answers
18 views

How to identify the orders p and q for ARIMA model using least squares method?

I would like to identify the orders p and q for ARIMA model using least squares method in Matlab. I have got also two data files (one with noise and one without) Previously I identified p and q for ...
2
votes
2answers
331 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 ...
3
votes
0answers
39 views

Need for Binomial Representation Theorem

In some texts (e.g. Baxter & Rennie, Shreve I) the binomial model is first constructed using the usual backward induction argument, and it is concluded that by no-arbitrage the time $t$ value of a ...
4
votes
2answers
81 views

R package for portfolio

In the context of modern portfolio theory, one often wishes to minimise $\mathbf{w}^{\mathrm{{\scriptstyle T}}}\boldsymbol{\Sigma}\mathbf{w}$ subject to $\mathbf{w}^{T}\boldsymbol{\mu}=c_{1}$, ...
0
votes
1answer
29 views

Expected Utility and $\log$

I've just started reading about expected utility and utility functions and have the following question. $\textbf{Question:}$ An investor has an initial wealth of 100 and a utility function of the ...
1
vote
1answer
46 views

Using Gordon's Growth Model to find value of corporation

This is a question posed to us by my professor in my finance class. I was under the impression that the Gordon Growth Model was used to find the intrinsic value of a stock, but I am unsure how to plug ...
2
votes
1answer
36 views

Black Scholes Formula, drift term

In the formula, the stock return is modelled as a brownian motion that is a drift + a stochastic term, ok I get that. But the drift term is then modelled as r - volatility ^ 2 / 2. I am not sure how ...
3
votes
1answer
32 views

Why Must Dividends Be Reinvested to Use Risk-Neutral Pricing?

Assume the price of a stock $S_t$ paying continuous dividend $a$ satisfies $$ dS_t = S_t\left((\mu - a)dt + \sigma dW_t\right). $$ The risk-neutral pricing formula states that if $\mathbb{Q}$ is any ...
0
votes
1answer
101 views

How to pull stock exchange names for a list of tickers, bloomberg?

How to pull stock exchange names for a list of stocks with tickers, on bloomberg? Please advise the steps so as to paste the list of tickers without having to type tickers one by one.
3
votes
1answer
73 views

In Dupire's paper, why is $(S_t, t)$ in the $(K, T)$ space?

I'm new to local volatility model. From Dupire's paper and most of the textbooks, they derived the local volatility $\sigma(K, T)$ in the $(K, T)$ (i.e., strike and maturity) space, from call prices ...
1
vote
1answer
36 views

What's the point of discounting in risk-neutral pricing?

Let $\phi$ be a self-financing strategy that replicates a time $T$ option payoff $X$ on stock $S$. By definition of a trading strategy, $\phi$ is previsible. Finally, let $V_t$ be the time $t$ value ...
-4
votes
0answers
13 views

Yield and interest rate? [on hold]

Are they the same thing? Is yield the annualized return rate? Why when yield rise, yearly return increases but price falls?
1
vote
1answer
30 views

Markowitz portfolio optimization question

I am studying the Markowitz portfolio optimization theory, and I just wanted to ask if I understood this correctly. For a stock portfolio we distinguish two kinds of risks: an unsystematic risk, which ...
3
votes
3answers
474 views

Portfolio software that shows 'total return' for each investment

I'm a high school technology teacher and sponsor for the Charity Student Investment Project. Currently our students track our investment portfolio via a google spreadsheet ...
1
vote
1answer
32 views

Differences between editions of Security Analysis by Graham and Dodd?

Where can I find a comparison of the contents, a list of everything that changed or the differences among the different editions of the book Security Analysis by ...
-1
votes
0answers
47 views

Is the Altman Z-Score broken?

When I try to predict future returns with with the Altman Z score, it fails. That would likely not be the case if it predicted bankruptcy well (e.g. the Piotroski F score). It seems to predict ...
9
votes
6answers
513 views

What is the fair price of this option?

Without having to use Black-Scholes, how do I price this option using a basic no-arbitrage argument? Question Assume zero interest rate and a stock with current price at \$$1$ that pays no dividend. ...
0
votes
1answer
32 views

Portfolio volatility

Problem True or fale? The stock of a firm has an expected return of 10%, and a volatility of 10%. The weight of the stock in a portfolio is 5%, and the correlation of the stock’s return with the ...
0
votes
1answer
103 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 ...
1
vote
1answer
45 views

Option Pricing under Jump Diffusion Models

I was wondering what the overall approach/intuition behind how to price options under Jump Diffusion Models. My understanding is under Diffusion models such as Geometric Brownian Motion (Black ...
0
votes
0answers
22 views

How to create a basket of currency pairs with the lowest correlation in R?

My strategy is designed to buy and sell all assets of a universe and rebalance periodically. It goes either long or short. To limit risk exposure to a single currency I would like the assets in the ...
2
votes
2answers
71 views

Negative high frequency intraday volatility - Zhou estimator

To estimate high frequency tick data stock intraday volatility, I have read Robert Almgren's notes7.pdf http://www.cims.nyu.edu/~almgren/timeseries/notes7.pdf where he talks about the bias free ...
3
votes
1answer
62 views

ETNs as bank funding

I've just read the article in the link below and would like to know if someone can elaborate on a statement. I have added the whole paragraph, but highlighted the part about the use of ETNs as cheap ...
1
vote
2answers
32 views

Is the Binomial Tree Model not self-financing?

Consider a 2-period binomial tree where the derivative price is $f$ and the stock price is $S$. Also, let the bond be deterministic with continuous growth rate $r$ and initial value $B_0$. binomial ...
-3
votes
1answer
31 views

Zero coupon bonds [on hold]

Assume the zero-coupon bonds from 1 year to 4 years are all available, and the current 1-year, 2-year, 3-year and 4-year spot rates are 4%, 5%, 6% and 7% accordingly. Interest rates are annually ...
1
vote
1answer
50 views

Discounted Stock Price

I have the following Question : Prove that under the risk-neutral probability p the stock and the banjaccount have the same average rate of growth. In other words, if $ S_0 , S_N $ are the initial ...
1
vote
0answers
18 views

How to test if two portfolios have the same composition

I'm facing two different portfolios in CAPM framework derived as $$\omega_P=\Sigma^{-1}\frac{E(r)-r_f}{H}(\mu-\iota'r_f)$$ on the same assets but for example on different time sample or on the same ...
0
votes
1answer
34 views

Derivation o HJB equation

I am trying to derive the HJB equation in a stochastic setting. Let me exemplify my problem with the simplest case where there is no control, just one state variable. Assume the payoff is given by $$ ...
-2
votes
0answers
22 views

Credit Risk question

Consider two 7% (annual) coupon corporate bonds, each with one year to maturity. Both are expected to default with 20% probability. Investors demand an expected return of 4.5% on both bonds. The only ...
2
votes
1answer
83 views

Density of Geometric BM via Fokker-Planck

Attempting to derive density of a GBM (which we know is log-normal) the long way, using the Fokker Planck-equation. Can't figure out where I went wrong - would appreciate a few sets of extra eyes! ...
0
votes
1answer
43 views

A Difference between Local Vol and Stochastic Vol Models

For the purpose of this question a local vol model is a 1d SDE which specifies the price process and we have a contingent claim that depends on those prices (in general, at multiple times). e.g. ...
0
votes
1answer
23 views

How to effectively hedge a Fixed-Term deal in a foreign currency?

Assume my firm is based in USD and agrees with some counterparty to buy, at time $T$, some quantity $Q$ of asset $A$ for a fixed price $K$. Assume also that $A$ prices and $K$ are denominated in EUR. ...
1
vote
0answers
46 views

Arbitrage question

Consider a hypothetical Payment in Kind (PIK) bond of XYZ Corporation. The bond has 2 years to maturity, a face value of $1000, and has an annual coupon rate of 10%. Coupons are paid annually. XYZ ...
6
votes
2answers
479 views

Demonstration of Ito's correction term/lemma in binomial tree

I am preparing an undergraduate QuantFinance lecture. I want to demonstrate the ideas of Ito's correction term and Ito's lemma in the most accessible manner. My idea is to take the "working horse" of ...
5
votes
5answers
449 views

Construction of “vol of vol”

How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
1
vote
1answer
23 views

simple, intuitive barrier option derivation

Is there a simple integral that gives barrier option prices without having to deal with messy, hard PDEs and change of variables I understand there is a reflection principle such that the simulation ...
0
votes
3answers
1k views

How does Yahoo finance calculate Beta?

I am trying to replicate the beta value that yahoo calculates but I am getting different results. According to Yahoo, its beta is calculated using 5 year returns against the SP500: yahoo beta I ...
14
votes
2answers
5k views

Transformation from the Black-Scholes differential equation to the diffusion equation - and back

I know the derivation of the Black-Scholes differential equation and I understand (most of) the solution of the diffusion equation. What I am missing is the transformation from the Black-Scholes ...
1
vote
1answer
38 views

Cointegration tests: how do you accurately test the necessity of time trends in the Johansen and Engle-Granger Test?

Is there a correct and up to date procedure? I just run the equation in VEC form and test the significance of the time trends? What are the possible problems that I should be aware of?
0
votes
0answers
26 views

Calculating VaR with Monte Carlo simulation

I would like some help here :) I have a problem calculating VaR with the Monte Carlo Simulation. I have followed then next steps, is this a right way to calculate VaR or I need something more? ...
-3
votes
1answer
53 views

Show that the equation solves the Black-Scholes PDE

I have the solution as given Based on this, I have to show that this solves the Black-Scholes formula It means that I should take the partial derivatives of the solution above and then receive the ...
1
vote
1answer
37 views

Why we consider second derivative w.rt price but only first derivative w.r.t time and volatility

What is the reason (better if it is intuitive, and not too math heavy), that when we talk of Greeks, we consider second derivative with respect to price (gamma), but only first derivative with respect ...
0
votes
1answer
16 views

Where to get historical daily settlement price of each VSTOXX futures contract

I'm doing some analysis on VIX and VSTOXX futures and require historical prices of each contract as a result. VIX info is free to download on CBOE website: ...
3
votes
1answer
66 views

Why must a replicating portfolio be self-financing?

If I have a trading strategy such that at each time $t$ I own $\Delta_t$ units of stock $S_t$ and $\psi_t$ units of bond $B_t$, it is a replicating strategy for some claim with time $T \geq t$ payoff ...
0
votes
1answer
62 views

Reuters RIC chain for Eurodollar midcurve options

Can someone please tell me what this is? Thanks. Edit: The RIC for the straight eurodollar options is 0#GE+, I need RICs for the 1,2,3,4 mid curve options which the IMM/IOM calls GE0, GE2, GE3, ...
8
votes
2answers
3k views

Can the J language be used as an effective alternative to Q/Kdb+?

I hear a lot about Q/kdb+. I've never had the opportunity to use it for anything real but have played with it using their trial license and found it intriguing (if not somewhat mind warping). I've ...

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