# All Questions

612 views

### In Black-Scholes, why is $\log{\frac{S_{t+\triangle t}}{S_t}} \sim \phi{((\mu - \frac{1}{2}\sigma^2)\triangle t, \sigma^2 \triangle t)}$?

Namely, I dont understand why the mean is $(\mu - \frac{1}{2}\sigma^2)\triangle t$ and not just $\mu \triangle t$. I am aware that it is supposed to represent a lognormal distribution, but I guess I'm ...
2k views

### Calculating Geometric mean

I need to annualize daily returns for about 120 firms for over a period of 10 years. I chose to calculate the geometric return because 1) it is the actual return 2) to avoid the asymmetric effect of ...
8k views

### Convexity adjustment for a forward swap rate

I recently heard that for a forward swap rate (for example, the fixed rate of a swap that will start in one year and end in five years), I need to do a convexity adjustment in order to get the right ...
2k views

### How is historical data for forex collected or computed?

I'm looking at four sources of forex data, as compiled in the question, What data sources are available online? And I think I must be misunderstanding something, perhaps something fundamental, but I'm ...
152 views

### Industry factors without GICS

I'm working through the Quantitative Equity Portfolio Management book by Chincarini and Kim. I'd like to build a basic industry-based fundamental factor model. As this is a pet project for ...
83 views

171 views

### How to deal with different amount of td's in computing Sharpe Ratio

In calculating the Sharpe Ratio, should I take into account the days were I have 0 return due to non-trading day? Another user posted a similar question but this was related to trading days with no ...
250 views

### Iterating through every path of a Trinomial Tree

I am attempting to come up with an algorithm to iterate through every possible path of a trinomial tree and am having difficulties coming up with one. Is there any literature on this or has anyone ...
196 views

### Foward-start option pricing

Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and is generated by $1 d$- ...
266 views

### Non-arbitrage theory and existence of a risk premium

Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and isgenerated by $1 d$- ...
3k views

### Gamma vs. Volatility Risk

Original Question: What is the link between Gamma and the Volatility Risk? It leads me to ask: - What is the Volatility Risk definition and what are the good practices to measure it? Thinking about ...
656 views

### Software for backtesting outside strategies (CSV transaction upload)

I've developed some software which generates sets of trades, and I'd like to backtest those trades. My software currently outputs a CSV file with details of each trade: ...
438 views

### Testing Significance of Correlation

Lets say I have the returns of two stocks(stock1 and stock2). Now without running a regression, I lag one of the variables, calculate the correlation between the two stocks and repeat this process as ...
1k views

### High-Frequency Traders and Front Running: What order types are they using? [closed]

I often hear in the news that High-Frequency Traders can front-run incoming trades because they are faster at acquiring information and to execute trades. I also read that speed is only a necessary ...
986 views

### Fitting distributions to financial data using volatility model to estimate VaR

I want to fit a distribution to my financial data using a volatility model to estimate the VaR. So in case of a normal distribution, this would be very easy, I assume the returns to follow a normal ...
1k views

### Value at Risk Monte-Carlo using Generalized Pareto Distribution(GPD)

I have created a VBA program to calculate VaR by using Monte Carlo, I have simulated Brownian Motion. This method might be ok for 100% equity portfolio, but let's say this portfolio may have fixed ...
540 views

### Regression with Lagged variables

I am new to regression analysis. Let's say initially I have a linear regression x = alag(x1) + blag(x2) + clag(x3) -- eq 1 I want to predict the price x based on the the price of x from previous ...
174 views

### monthly contract volume required for penny increments?

Have the exchanges disclosed their criteria? Does anyone have a best guess based upon observations of volume (however you wish to define it)? Please no qualitative answers.
5k views

### Using variance ratios to test for mean reversion

Can you use the variance ratio test to determine whether or not a time series is mean reverting? I'm using the Lo.Mac function in the ...