# All Questions

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### How to show that this weak scheme is a cubature scheme?

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...
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### Which interest rate model for which product

Given the multitude of existing interest rate models (ranging from simple to very complex) it would be interesting to know when the additional complexity actually makes sense. The models I have in ...
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A binary option with payout \$0/\$100 is trading at \$30 with 12 hours to expiration. Assuming the underlying follows a geometric Brownian motion (hence volatility remains constant), what ... 0answers 233 views ### Transformation of Volatility - BS I have recently seen a paper about the Boeing approach that replaces the "normal" Stdev in the BS formula with the Stdev \sigma'=\sqrt{\frac{ln(1+\frac{\sigma}{\mu})^{2}}{t}} ... 0answers 159 views ### Do intraday volume and volatility share the same properties? volatility clustering and mean reversion are very well known properties that one could use when trading. Traders, especially in options world, do take realized vol into account (e.g. by forecasting it ... 0answers 106 views ### Proving the asymptotic distribution of Manipulation-Proof Performance Measure (MPPM) (Paper by Goetzmann et al.) In Goetzmann et al.'s (2007) paper, the authors derive a "Manipulation-Proof Performance Measure" (MPPM), which is a performance measure that is impervious to performance manipulation by fund ... 0answers 499 views ### Algorithm to fit AR(1)/GARCH(1,1) model of log-returns I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns,$r_t=\log(P_t/P_{t-1})$, where$P_t$is the price at time$t$, and thus far am not clear on where the observed log ... 0answers 233 views ### What good papers of short term (<30 seconds) volatility estimation I am looking for good papers of short term (<30 sec) volatility estimation AND short term volatility forecasting. Do you have something in mind ? 0answers 271 views ### Examples of Spectral Risk Measures Let's take the usual definition of a spectral risk measure. If we look at the integral we see that spectral risk measures have the property that the risk measure of a random variable$X$can be ... 0answers 186 views ### Time series analysis on illiquid price data? Say for example I have the following company in some specialized industry: A - Company that is about to be listed in Exchange 1, i.e., no price history B - Company that produce similar products as ... 0answers 92 views ### Basket option density in BS model Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is$X_t\sim{LnN(µ_x, σ^2_x)}$,$Y_t\sim{LnN(µ_y, σ^2_y})$and$Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$... 0answers 137 views ### Covariance estimation Shrinkage was much en-vogue before RMT took everybody's attention, however the latter also showed its limits. A plethora of other estimators has been presented, but I could not yet spot a golden ... 0answers 288 views ### Distribution of profit/loss for retail traders in FX I've heard that 90% of retail investors in FX lose money. I want to analyze this in more detail. Question: Is there some literature that describes the statistics of profit/loss for retail traders in ... 0answers 171 views ### Stress testing covariance Going one level beyond stressed scenarios, to parameters e.g. for a VaR measure: what are the most common approaches for stressing a covariance/correlation matrix, especially taking portfolio exposure ... 0answers 687 views ### VaR model Unconditional Coverage Tests: Is this extension of Kupiec POF test correct? Background: Kupiec P. in 1995, published paper "Techniques for Verifying the Accuracy of Risk Management Models" on Journal of Derivatives, v3, P73-84, it's a Unconditional Coverage Tests designe for ... 0answers 342 views ### option chain data visualization, sunburst I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ... 0answers 271 views ### Alternative ways to understand time-varying comovement between two time-series? I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time. I first thought about using a Kalman/particle filter over a ... 0answers 181 views ### How to build an electricity portfolio for an electricity production company? I am referring to an electricity production company. Company is located in AsiaPac. The power is generated using Natural Gas fired combined-cycle power plants. Then this electricity is distributed to ... 0answers 153 views ### Replicating portfolio and risk-neutral pricing for interest rate options For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ... 0answers 135 views ### Testing for stock market herding over short periods The literature has well established methods for testing stock market herding over a decent time window. Are there any ways that have appeared in the literature to test for stock market herding over ... 0answers 239 views ### Can Hurst exponent be used to characterize nonlinear dependence in time series? It appears to me that the answer is no, because Hurst exponent measures persistence in terms of autocorrelation, which is a linear measure. So even if a time series of asset returns is driven by ... 0answers 236 views ### generating (or tracking) the DJUBS commodity index Dow Jones and UBS publish one of the most popular commodity index families, the Dow Jones-UBS Commodity Index and its subindices. They provide a detailed manual describing the composition of the index ... 0answers 407 views ### What is the correct procedure to choose the lag when preforming Johansen cointegration test? When preforming Johansen cointegration test for 2 time series (the simple case) you need to decide the lag you want to use. Doing the test for different lag levels returns different results: for some ... 0answers 556 views ### Alternative to Block Bootstrap for Multivariate Time Series I currently use the following process for bootstrapping a multivariate time series in R: Determine block sizes - run the function b.star in the np package which produces a block size for each series ... 0answers 44 views ### Attribution of unusual persistence in noncompetitive TAQ quotes levels? I am looking at one day of AAPL quotes (3 Dec 2012) from TAQ to examine quote-based high frequency vol estimators. However, I found that a number of exchanges, when quoting noncompetitively, seem to ... 0answers 132 views ### Graduating Quantitative Finance (please don't move it to meta immidiately) Seeing how very few actually read the Quant Finance meta I intentionally post it here on the main site. To the more powerful admins: could you leave it here for a day or two and move it to meta ... 0answers 46 views ### FTAP a-la Harrison, Kreps and Pliska I was reading the papers co-authored by Harrison, Kreps and Pliska, that initiated the formal research on the connection between pricing, martingale measures, arbitrage and completeness. I have some ... 0answers 28 views ### What type of interpolation should be used in key rate perturbation models? When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ... 0answers 78 views ### Finding the dynamics of a dividend paying asset under arbitrary numeraire Assuming I have a dividend paying asset$S$with dividend process$D$. Now I would like to use the bank account process$B$as numeraire and determine the dynamics of$S$under the the corresponding ... 0answers 46 views ### FTAP in the model independent case, paper by Schachermayer I have a question about the following paper by Beatrice Acciaio, Mathias Beiglböck, Friedrich Penkner, Walter Schachermayer. At the very beginning of the paper, on page 3, there are two definitions ... 0answers 162 views ### Optimization: Factor model versus asset-by-asset model In portfolio management one often has to solve problems of the quadratic form $$w^T \Sigma w + w^T c \rightarrow Min$$ with portfolio weights$w \in \mathbb{R}^N$a constant$c \in \mathbb{R}^N$and ... 0answers 216 views ### Optimal trading strategy in toy world of simple Hidden Markov model with Gaussians I want to solve the following optimization problem: What is the optimal general trading strategy (in the sense of the highest Sharpe ratio) on a time series which is the result of a Hidden Markov ... 0answers 263 views ### Formula for the efficient portfolios (mean-variance optimisation)? Consider the setting of mean-variance portfolio optimisation:$n$assets with expected returns$\overline{r}_1,...,\overline{r}_n$and standard deviations$\sigma_1,...\sigma_n$. For a certain fixed ... 0answers 91 views ### Applications of distance correlation This question mentions distance correlation. Where has this concept been applied to financial data and provided new insight? Do you know any examples or references? 0answers 89 views ### How to test that a distribution has infinite mean? I observe a sample from a distribution that I expect to be the hitting time $$\tau = \inf\{t>0| X(t)>a\}$$ where$X(t)$is a Lévy process with$X(0)=0$and$a$is some constant.$X$is not a ... 0answers 77 views ### Risk neutral measure in exponential levy model Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ... 0answers 260 views ### Shrinkage Estimator for Newey-West Covariance Matrix I like to apply the Newey-West covariance estimator for portfolio optmization which is given by $$\Sigma = \Sigma(0) + \frac12 \left (\Sigma(1) + \Sigma(1)^T \right),$$ where$\Sigma(i)\$ is the lag ...

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