3
votes
1answer
202 views

How to calculate implied volatility smile of basket using correlations?

For a basket, the realized volatility can be calculated using: $$\sqrt{\sigma_1^2 + \sigma_2^2 + 2 \sigma_1 \sigma_2 \rho}$$ If I have the volatility surface of two underlyings S1,S2 (strike space). ...
0
votes
1answer
20 views

Derivation using Ito's Lemma of price process

define q(t) as the log price minus a linear trend $$ q(t) = logP(t) - \mu t $$ assume teh log price process = Equation 1: $$ dq(t) = - \Theta q(t) dt + \sigma dW(t) $$ Can you show that the ...
4
votes
1answer
88 views

Regression model when samples are small and not correlated

I received this question during an onsite interview for a quant job and I'm still scratching my head on how to solve this problem. Any help would be appreciated. Mr Quant thinks that there is a ...
2
votes
1answer
76 views

Rebalancing portfolio weights

I have a matrix of returns and weights for every time period. ...
3
votes
1answer
111 views

How to calculate the JdK RS-Ratio

Anyone have a clue how to calculate the JdK RS-Ratio? Let's say I want to compare the Relative strength for these: EWA iShares MSCI Australia Index Fund EWC iShares MSCI Canada Index Fund EWD ...
3
votes
2answers
61 views

Stochastic Calculus Rescale Exercise

I have the following system of SDE's $ dA_t = \kappa_A(\bar{A}-A_t)dt + \sigma_A \sqrt{B_t}dW^A_t \\ dB_t = \kappa_B(\bar{B} - B_t)dt + \sigma_B \sqrt{B_t}dW^B_t $ If $\sigma_B > \sigma_A$ I ...
0
votes
1answer
12 views

Expected Shortfall alternative formulation

Define: $$q_\alpha(F_L)=F^{\leftarrow}(\alpha)=\inf\lbrace{x\in \mathbb{R}\mid F_L(x)\geq \alpha\rbrace}=VaR_\alpha(L)$$ I want to prove that: $$ES_\alpha = ...
0
votes
1answer
13 views

Difference between Closing Price, Last traded price and Settlement Price for option contracts?

What is the difference between Closing price, Last traded price and settlement price ? I got the difference between Closing Price and Settlement price from previous post : The difference between ...
23
votes
4answers
6k views

What is a stationary process?

How do you explain what a stationary process is? In the first place, what is meant by process, and then what does the process have to be like so it can be called stationary?
2
votes
1answer
21 views

Range options in BS

I know how barrier options are priced in Black-Scholes scheme. I'm wondering if an analytical formula exists also for range (corridor) digital options i.e. options paying only if the price remains ...
0
votes
1answer
208 views

Factoring risk premium in to Forward Rate calculation

This is a self study question. I'm calculating a forward rate. Specifically, I have that in a country X, the Spot Rate is 5X/1US. I also have that the 1 year interest rate is 13% in country X and ...
3
votes
1answer
98 views

Best simplified way to model volatility in returns of an investment in a risky fixed income asset

I am currently working on a project where I have analyzed a certain category of fixd income instruments, and I now have the gross aggregate yield as well as the theoretical gross-aggregate ...
0
votes
1answer
16 views

Constructing NS-Svensson parameters with zero coupon AND coupon bonds

I am in the process of calculating sovereign zero coupon yield curves using the NS-Svensson parameter for a number of countries. Due to data constraints, I would like to use the information from price ...
4
votes
5answers
163 views

Math background required to understand geometric brownian motion

What mathematical concepts are required before I can understand what exactly is a Geometric Brownian motion as applicable to stock prices? I mean which branches of probability, calculus, statistics ...
3
votes
1answer
159 views

How google finance calculates beta of a stock

How google finance calculates beta of a stock - What is the proxy for the market? - What is the time period it uses for regression?
3
votes
1answer
27 views

Risk budgeting for Non linear Portfolios

I am using this question to compute optimal weights following a risk budgeting approach. The problem is I am using non-linear portfolios (options,equity,fixed income,fx). What I am looking for is ...
1
vote
1answer
27 views

Tools/R-code to create gain/loss-asymmetry plots

The gain/loss asymmetry is a well known stylized fact: It basically states that real financial time series take longer for going up than going down. To detect it a heavy statistical machinery is ...
2
votes
1answer
64 views

Calibration Merton Jump-Diffusion

Consider the following SDE $dV_t = rV_tdt +\sigma V_t dW_t + dJ_t$ where $J_t$ is a Compound poisson process with log-Normal jump size $Y_i$. How am I supposed to calibrate this model to CDS ...
4
votes
1answer
194 views

Models crumbling down due to negative (nominal) interest rates

Dear Stackexchange users, given that the negative interest rates on a lot of sovereign bonds with maturity under 10 years are trading in the negative (nominal) interest rate territory (recently also ...
1
vote
0answers
42 views

Orthogonal Regression/PCA

I am doing orthogonal regression. My X matrix consists of returns on a broad market index, value index, growth index, a few sectors,.....(my Y is the returns on an equity fund) I am regressing the Y ...
0
votes
0answers
34 views

Estimate volatility in forecast

I have a model with a rolling forecast. In each time step $t$, I predict the price for the next periods, e.g. $\hat{p}(t, t+1)$ and $\hat{p}(t, t+2)$. If I start in $t=0$ and arrive at $t=2$, I ...
0
votes
0answers
34 views

How difficult/easy it is to migrate from CME FAST to CME MDP3.0?

Has anyone gone through this migration? Just wanted to have an idea of the amount of effort required.
0
votes
1answer
30 views

Delta hedging cost of exotic options?

I'm simulating dynamic delta hedging for up-and-out call option. For plain vanilla call options, I heard that the option price is the expected value of the accumulated delta hedging cost. Does it also ...
0
votes
1answer
40 views

FORECASTING Model AR(1) in an Autoregressive Form The Pi´s Parameters

Ive been implementing a little exercise to obtain the first 2 forecasting points of an AR(1) process. And i want to have the forecasting ponts using the three forms: Im folowing this pdf ...
0
votes
0answers
15 views

calibration of Gaussian two factor short rate model

I am trying to calibrate the gaussian two factor short rate model whose dynamics is given by r(t)=x(t)+y(t)+phi(t) Now to calibrate the model to term structure ...
0
votes
0answers
17 views

Merton Jump Diffusion Model: Influence of lambda

I use Monte Carlo to simulate sample paths of Merton's jump diffusin model. By plotting a histogram of the log returns and using kerneldensity to approximate the density function I try to look at the ...
0
votes
1answer
243 views

Question on Barrier Option and Skew

If you bought an Equity Call Option with a Down-and-In Barrier, are you Long Skew or Short Skew? Please provide explanation as well. Thanks.
1
vote
1answer
381 views

Empirical copula

I am trying to find the empirical copula linking two random variables $X$ and $Y$. I have some data available but it's limited with respect to the variable $Y$ and I am not convinced it's enough data ...
0
votes
1answer
42 views

Garch models and assumption of stationarity ?

I found big inconsistency in the GARCH models and their underlying assumption of stationarity. GARCH models require that data must be stationary, where stationary means both mean and variance are ...
4
votes
2answers
870 views

Monte Carlo simulating Cox-Ingersoll-Ross process

The CIR process is given by the SDE $$ \mathrm dr_t = \theta(\mu-r_t)\mathrm dt + \sigma\sqrt{r_t}\mathrm dW_t $$ where $W_t$ is a Brownian motion. I am interested in finite-difference schemes of ...
0
votes
1answer
29 views

Transforming coupon bond returns to ZC bond returns

I am interested in aggregated Amihud ratios measures over bond groups. For a large panel data set with daily bond prices and volumes I have calculated already Amihud ratios per ISIN/day. Naive ...
1
vote
1answer
120 views

Semi-variance/Downside Risk, what about the rest of the covariance matrix?

I just bumped into a rather interesting article from wikipedia : http://en.wikipedia.org/wiki/Downside_risk where they define the semi-variance also called Downside risk, which bascially only ...
1
vote
2answers
997 views

How can I calculate Fama-French betas for a particular stock?

For a particular stock, what's the simplest way to calculate betas for the Fama-French factors SMB and HML?
6
votes
3answers
203 views

Can Gaussianity of returns depend on the time frame?

I would be interested in knowing if the fact that returns are Gaussian is disproved on all time frames, or if, for example, the 5 minute intra-day time frame could exhibits Gaussian returns assuming ...
5
votes
1answer
1k views

Tools/R code for predicting Dragon-Kings

The theory of the so called Dragon-Kings, esp. by Didier Sornette (ETH Zürich), basically states that financial crises and crashes are predictable (contrary to the theory of black swans). The ...
5
votes
3answers
293 views

How is stock data objectively different to this random walk?

I have a random walk that is generated as so using python, numpy, and matplotlib ...
14
votes
14answers
8k views

Is “eoddata” a good data source?

Not sure if this is a relevant question for site, but I am looking to move to www.eoddata.com as my data source. If anyone has used it, can you tell me how the data quality is ? I am currently ...
0
votes
2answers
21 views

how to convert notional to nominal of bond future to ctd bond

I want to know if you can easily convert a notional of a bond futures contract into the nominal of the ctd bond if you have the conversion factor. For example you have 1000 notional of a futures ...
2
votes
2answers
119 views

Why $N(d_1)$ and $N(d_2)$ are different in Black & Scholes

I'm struggling to understand the meaning of $d_1$ and $d_2$ in Black & Scholes formula and why they're different from each other. As per the formula, $$C = SN(d_1) - e^{-rT}XN(d_2)$$ which ...
4
votes
0answers
29 views

Gain/loss-asymmetry in artificial financial markets?

The gain/loss asymmetry is a well known stylized fact: It basically states that real financial time series take longer for going up than going down. My question Are you aware of any artificial ...
2
votes
3answers
42 views

Impact of big order on price

What is known about the question: If someone buys or sells a huge amount of some asset how the price would change ? Of course, it depends on the kind of assets and other context. My main interest is ...
0
votes
2answers
59 views

Legitimate input parameters for Nelson Siegel Svensson model

I had previously asked this question and have come to better understand the answer with regards to setting the input parameters for the Non-Linear Optimization problem that provides the NSS ...
0
votes
0answers
23 views

Quantitative methods for Fund Managers [on hold]

I might be wrong, but from what I've seen most Fund Managers are CFA guys with little quantitative background. They rely way more on market experience than cold numbers. Is there such a thing as a ...
0
votes
0answers
19 views

delta of a swaption using Bringo

I struggeling with calculating the delta of a swaption. In the interest rate case I usually mess around with the multiple cash flows over time so that the discounting is more complex than in the ...
1
vote
1answer
44 views

Connection between implied volatily and implied probability

I am reading some lecture notes about Black-Scholes (BS) option pricing. Since the BS-formula is not supported by observed data because of the dependence of the implied volatility on the strik and ...
0
votes
1answer
46 views

How to learn QuantLib-python at first?

In my project, I have to get the delta of up and out call option (with vol surface). I found out that QuantLib might help me on that. Since my main language is python and I don't know well about C++, ...
1
vote
1answer
69 views

Jump-Diffusion Processes

This last quarter of college for senior project, I will be doing research on the application of jump-diffusion processes to pricing derivatives. I was wondering if anyone could recommend any resources ...
0
votes
1answer
44 views

About the boundary conditions of the Black-Scholes-Merton PDE

I have a question about the solution of the Black-Scholes PDE for the European call option when I read the book Stochastic Calculus for Finance II of Steven E.Shreve. Let $c(t,x)$ be the value of the ...
0
votes
0answers
24 views
+50

Bayesian logit model in Psychometric or Behavioural Testing for Credit Scoring in Developing Countries

A lot of parameters in one title, I know. So there's credit scoring but not using credit history. Then there's using a Bayesian logit model. Then there's doing so in a developing country such as Haiti ...
8
votes
2answers
308 views

GARCH model, expectation of volatility?

Consider a time series $\{r_t\}$ following a standard GARCH(1,1) model, i.e., $$ r_t = \sigma_t \epsilon_t,$$ where $\epsilon_t \sim N(0,1)$ and are i.i.d, and $$\sigma_t^2 = \omega + \alpha_1 ...

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