# All Questions

113 views

### How to model the effect of earnings surprises on long-term returns?

I'm looking into modeling the relationship between EPS announcement surprises with long-term returns (1 quarter to 3 years with intervals). I've based my current methodology off papers looking at the ...
364 views

### Understanding how to calculate tracking error

I have come across two ways of calculating Tracking Error (TE) but i'm not sure if they are essentially the same. The first way is to calculate the standard deviation of the difference between a fund'...
98 views

### Where can I find a list of market-moving news announcements for different asset classes?

Different asset classes have different important news announcements that move the markets intraday. For instance, oil volatility increases after the EIA Petroleum Status Report, but that announcement ...
59 views

### End-of-day holdings vs overnight inventory

I am wondering whether these two terms identify the same thing: overnight inventory end-of-day holdings The way I would explain it intuitively, the inventory that is held overnight should be ...
722 views

### Price of a composite option

how would you calculate the fair value of an option on a fx'ed underlying, e.g. a put on a USD-stock which is changed into EUR? How should I get, in practice, the fx spot vol/correl? Purpose is to ...
55 views

142 views

### Calculating returns for a mutual fund with dividends

I'd like to calculate returns for a given mutual fund (in this case, PRWCX from troweprice). When I look at their published performance, it says the Calendar Year Total Returns for 2013 is 22.43% but ...
61 views

### What do “Exposure Bounds” mean in Portfolio Optimization?

I've just started reading up on Portfolio Optimization models and have come across the use of exposure bounds to mitigate the sensitivity of the optimized model solution, owing to parameter estimation ...
456 views

### Cholesky Decomposition on Correlation Matrix for Correlated Asset Paths

I found a matlab example for modelling correlated asset paths: http://www.goddardconsulting.ca/matlab-monte-carlo-assetpaths-corr.html In this model the author uses the matlab code chol() in order to ...
88 views

### How can theta be so large on this option?

The AAPL Sep 95 put currently has a theta of -.21. The put midpoint is .84. 84/21 = 4 days. However, the put has nearly a month before expiration, at which time it will be zero. Not 4 days from ...
114 views

### ADR vs Foriegn Stock Price Arbitraguers

So I am sure you all know about the whole Argentina default that has been in the papers lately, no need to delve into it. This so called "technical" default has lead some interesting investment ...
140 views

### Explain drop in Correlation between two time series in consecutive periods

I have a time series for a security list with 2 parameters calculated for each time period. For example, for a stock XYZ, I have Param1 and Param2 calculated over various time periods stacked against ...
344 views

### Impact of NZD mid-day EST Roll forward

Was taking a look at an NZD spot deal that was traded on a Friday for value the following Tuesday (t+2). Somehow this trade became classified as a forward by our back office systems (dealer says they ...
56 views

### Proper way to combine wavelet coefficients from multiple rounds of analysis

I am doing signal analysis for a time series and the assumption of signal is S = F + e Where S is the original signal, F is the frequency component and e is white noise (auto-regressive time series ...
127 views

### CVA number used by Finance Team

What are different reasons, Finance Team will need CVA number for? Is there any specific regulatory reporting to be done?
193 views

### Non-Negativity of up-factor and down-factor in Binomial No-Arbitrage Pricing Model

Consider a stock which is trading at $S_0$ at time $t=0$ and is expected to be trading at price $uS_0$ or $dS_0$ at time t=1 where $u$ and $d$ are up-factor and down-factor. The theory says that to ...
193 views

### Selling an American call option early

I understand it is never optimal to exercise an American call option early. [1] [2] However, here are my two contradictory thoughts about selling an American call option early. Assumptions I can ...
138 views

### Company rank within an industry

I'm looking at the list of companies in the S&P 500 Pure Value Index. For each firm, I want to obtain the dividend yield industry percentile rank and the PEG ratio industry percentile rank. I've ...
547 views

### Arbitrage free implies complete market?

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition It seems that to show that the model is complete, we must show that the claims are reachable. That is, we ...
169 views

### Prove that the binomial algorithm implies the arbitrage free price at t=0 of a T-claim

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ these propositions How does the first formula follow from from the algorithm? I get that $\Pi(0;X) = V_0(0)$, but I don't ...
77 views

### How to benchmark bonds?

I am trying to find for each european bond in my database a proper Benchmark to compare them with the Bloomberg benchmarks for bonds. What i have done so far is to extract a list of all government ...
182 views

### Does a delta hedged short option guarantee profit of extrinsic value at expiration?

If a trader shorts an option and dynamically delta hedges to ensure the delta is equal to 0 if that option expires out of the money does the trader profit that options extrinsic value at the time of ...
3k views

### How can I calculate the strike price or implied volatility from a given delta?

I have calculated the implied volatility for all strikes of a certain product (options on futures) and approximated the ATM volatility. My question is how can I figure out the implied volatility for a ...
206 views

### Counterparty risk tutorials

I want to learn about the latest methods used to measure credit risk, which I believe is same as counterparty risk. Can you please direct me some links for this. I have come across a few of them but ...
97 views

### Joint distribution from expectations

Given two random variables $X$ and $Y$ and let $K$ be a constant value. Assume the expectation $\mathbb{E}[X(Y-K)^{+}]$ is given for all possible values of $K\geq 0$. Is there a way to derive the ...
159 views

### In a Black-Scholes world, why must volatility be strictly increasing in time-to-expiration?

This question is from Rebonato's Volatility and Correlation 2nd Edition. Rebonato states that if $\sigma_T^2T$ is not strictly increasing, it would be simple to set up an arbitrage. Unfortunately (...
160 views

### Arbitrage Strategy Proof in Bjork

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition Proposition 2.9 Suppose that a claim X is reachable with replicating portfolio h. Then any price at t=0 of ...
180 views

### Black–Karasinski - Market Price of Risk

In the past I have calibrated simple short rate models to the term structure by using maximum likelihood to get the parameters of the Vasicek/CIR sde, and then use the ZCB formula and the current ...
160 views

### regarding Basel II III model

I may have to get involved in some projects using Basel II, III model for risk modeling, to which I have no background. Are there any good book/tutorials to recommend? What are the underlying ...
195 views

### Market-Maker existence impact to short-term informed directional trading

How existence of market-maker affects short-term directional trading? Normally when playing short-term directional we play against market marker that will cover losses from uninformed traders. But ...
216 views

2k views

### Is there a formula for future value of a growing annuity with yearly payment growth and monthly payments?

My example is saving for college: assume a start of 0 balance deposits of 200 made monthly, every year they increase by (g) 2% to account for salary increases, first deposit made at the end of the ...
217 views

### High correlation will help detect spurious regression over cointegration?

I'm analyzing two financial time series with Johansen method. A high Correlation coefficient using the Pearson method will help me to detect spurious cointegration models to avoid? If this is not ...
45 views

### How to reason about leverage in terms of elasticity

Return of an investment for a given period is by definition: $$r = \frac{P}{W_0} - 1$$ where $P$ is the price of the investment at the end of the period, and $W_0$ is the initial investment. I want ...
714 views

### How can I calculate Value at Risk?

Is it possible calculate Value at Risk on an asset without a time horizon? What kind of variables do you need? Variables that are on the table are value, standard deviation, beta, market return, risk ...
170 views

### Constant term in linear regresion

Can someone give a mathematical proof as to why including a constant in a linear regression equivalent is to running a regression with demeaned data and zero constant? More specifically, consider the ...
191 views

I have some work to do on the drivers of government bond spreads - ie. across terms (not across governments) of the yield curve, say 5yr and 20yr bond spreads from the same government issuer - and am ...
241 views

I'm constructing money-neutral spread by this formula: Spread = log(P1) - log(P2), where P1 and P2 is prices of two instruments But sometimes spread can get into ...
198 views

### Are power contracts traded on any stock market?

Are power contracts traded on any stock markets ? What about OTC markets ? I ask about the derivatives where payoff is some exponential function of difference between strike and spot price.
I failed to evaluate the integral of $\frac{e^{ax}}{x\sinh(bx)}$ with respect to $x$ from negative infinite to positive infinite, What techniques can I use to evaluate the integrals of such kind for ...