# All Questions

302 views

### Obtaining the default probability and recovery rate for each credit rating?

I have the following questions for obtaining the credit rating: Given that I have cumulative default probability of each credit rating from Global Corporate Average Cumulative Default Rates (1982-...
618 views

### Question about Merton model to estimate default probability and recovery rate of the company

I recently come across Merton's model to estimate the default probability and recovery rate of the company. Here is the inputs ...
248 views

### Why use leverage when it does not improve the risk/reward ratio? [closed]

Leverage will increase gains when things go right but will also increase losses when things go wrong. Mathematically speaking, it does not change the risk/reward ratio (or does it?). Since investing/...
139 views

### Is it better to hedge or reduce the position size? [closed]

Traders hedge to reduce their risk. However, wouldn't reducing the position achieve the same results while keeping the risk management process simpler? At least, one need not worry about making the ...
89 views

### Can you hedge a derivative with a CASH|spot product or does it have to be another derivative instrument

Consider you have a SWAP (any kind) to hedge this SWAP, you will most likely use another Derivative,but can you use a cash|spot product to hedge this. Like Cash Equity or FX Spot
137 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?
74 views

### how to extract moments of GB from moment generating function?

I'm searching for the moments of geometric brownian motion using the gmm optimization program. the aim is to make the process y(t) of returns follows a normal distribution Are there any packages in ...
155 views

214 views

### Control variate for Heston model

Does anyone have suggestions for potential control variates for vanillas in a Heston model? I've tried black scholes with implied volatility, average volatility and long term volatility all without ...
3k views

### Why are there still manual market makers in options

Why are manual market makers still predominant in options markets? Why haven't algorithms replaced these market makers, as they have for liquid stocks for example?
664 views

### FIX binary decoder

Not sure if this is the right question board for this - It sounds like CME is switching their MDP platform from FAST to Simple Binary Encoding and it will be going to production soon. Does anybody ...
144 views

### Binomial lattice convergence

How do I measure how quickly a binomial lattice converges to an option value as the number of steps is increased? I'm charting option value versus number of steps for various binomial lattice models ...
287 views

### Stat Arb Equity Pair Position Trigger

I am new to pairs trading and am in the process of constructing the code for backtesting a basic pair trading strategy. While I understand the basic idea behind the pair trading strategy, I am having ...
53 views

### What mean factor behind a yield?

When quoting a yield of a transaction e.g. yield 3.8% behind the yield it is quote "factor" - in this case of a yield of 3.8% it is mentioned in brackets (factor 26.11) . The lower the yield the ...
303 views

### Basic question about bonds pricing

I decided to recap my knowledge in interest rates, and decided to start with Chapter 4 on interest rates (in 8th edition) of the Hull's book "Options, Futures and Other derivatives". In 4.3 the ...
3k views

### Calculate Average Price, Cost, (Un)Realized P&L of a position based on executed trades

We have built an algorithmic trading software and need to calculate the following parameters for each position in our portfolio. Average Price Cost Realized Profit & Loss Unrealized Profit & ...
229 views

### Can Beneish's model for detecting earnings manipulation be applied to companies in the UK?

As I understand it this model derived from data for US companies. Is it valid to apply the model as is to UK companies or does it require any modifications? Description of the model: http://www....
219 views

### Fundamental reasons for the stock price change

Let us start from the old times, where markets were less liquid. Suppose I hold some stocks of the company XYZ and I want to sell them. Why shall I expect that their price can rise in the next quarter ...
148 views

### “Real” DMA to Options Markets

I'm looking for a broker with DMA to large options markets (CME, ISE, CBOE). Broker should be HFT friendly, i.e. offer fast API, low fees for huge amount of trades and so on. Price is not an issue. ...
357 views

Consider a non-liquid option market with a wide bid-ask spreads across all strikes. Spot: \$52 A snapshot of the \$50 strike shows: ...
102 views

### Survey of market making strategies and research [duplicate]

I am undergoing a focused study of market making theory. So far, I've encountered the following papers: Market Making and Mean Reversion Adapting to a Market Shock: Optimal Sequential Market-Making ...
806 views

### How to simulate stock prices with stochastic time change subordinated arithmetic Brownian Motion?

the idea is to simulate price returns thus to be normally distributed i 'am trying to use subordinated arithmetic brownian motion subordinated to time activity (volume) stock prices are following GBM ...
320 views

### What is the correct Stutzer index and Sharpe ratio relation, assuming a normal returns distribution?

Assuming the returns distribution is normal, then there is a relation between Stutzer index and Sharpe ratio. However, I found in the following paper 2 different equation: Paper I (page 10-11)‎ ...
420 views

### Why is the Put-Call Symmetry model dependent?

The put-call symmetry states that C(S,t;X,r,q) = P(X,t;S,q,r), and that this works for American options. According to my notes, this is 'model dependent' because it ...
520 views

### Trader's identity in a limit book

In a limit book like NASDAQ ITCH, can liquidity suppliers know the demand-side identity of a trader prior or after a trade? Knowing this will help me with my theoretical model that I am trying to ...
143 views

### Calculating spot level using tick data

What is a proper (or commonly used/accepted) way of calculating some spot value with tick data? At the moment I can think of two options: Take the latest available best bid, latest available best ...
424 views

### Delta in Covered Calls?

Just want to check whether i understand it correctly: Long Calls have positive delta Long Puts have negative Delta Long stock has 0.01 delta 100 Shares have 1 delta Therefore: Covered Call = 1 ...
222 views

### Market Standard Pricing Models for Fixed Income Securities (Vanilla)

To clarify my heading, I have been searching for a material that consolidates all standard Fixed Income Security Pricing. E.g. ...
806 views

### Setting up Schedule for an amortizing floater in QuantLib

I am unsure as to the exact arguments required for the Schedule function for an amortizing floater - my code is listed below. Specifically, my question pertains to whether the schedule should always ...
669 views

### Differential equation for log-returns

I have a question that might be trivial to most of you, but somehow I'm not able to solve it by myself. I have a disagreement with my colleague on the distributional properties of a Geometric Brownian ...