# All Questions

388 views

### Are BSDE's used in practice?

In the academic applied probability/math finance community, Backwards Stochastic Differential Equations (BSDE's) are extremely popular, and they provide a single framework for several different ...
392 views

### Call options portfolio: what would the underlyings' moments to be maximized?

Let you have only three underlyings, like SPY, TLT and GLD, and you want to buy $n_{1}$ Call options on SPY, $n_{2}$ Call options on TLT and $n_{3}$ Call options on GLD... with a limited budget, that ...
100 views

### Problems with exact Heston simulations

I am just wondering if there is any problem with the so-called "exact" Heston simulations? So far what I have seen are the good things about it, what are the disadvantages? Because if it is so perfect,...
1k views

### Matlab - Differences between rng and rand

I was trying to run some Monte-Carlo simulations and if I used: rng(seed, 'Twister'); For some reason I would get "Option Values Can not be Negative" errors in the blsimpv function, but if I just ...
275 views

### Credit risk data

I am trying to get historical data for credit risk and do some analysis on it as a school project. I thought CDX index might be a good proxy for typical credit risk data, but I am not sure. Typically ...
216 views

### How to justify a model that could not predict external factors?

I'm building some models, for example, Bad Loan (NPL) rate. It's based on historical simulation method -- basically it's saying the future behavior could be predicted by history data. However, this ...
45k views

### Mapping symbols between tickers, Reuters RICs and Bloomberg tickers

Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example: Ticker: AAPL Reuters: AAPL.O (may be prefixed with RSF.ANY. dependent ...
448 views

### Correlation Sensitivity

Suppose I have 2 stocks $S_{1}$ and $S_{2}$: \begin{align} & dS_{1}=rS_{1}dt+\sigma_{1}S_{1}dB_{1}\\ & dS_{2}=rS_{2}dt+\sigma_{2}S_{2}dB_{2}\\ & dB_{1}dB_{2}=\rho dt \end{align} Then I ...
606 views

### Why the implied volatilities calculated are so different

I Calculated facebook option(expired in 12/4/13) Implied Volatility with the Bisection Method. The program will be attached at the end. The results for different strike prices are so different: ...
674 views

### Central Limit Theorem and Lévy processes

Lévy processes are self-decomposable and independent on any non-overlapping interval, so how come the distribution of the process at time T,$\phi(T)$, which is the sum of N i.i.d with law $\phi(T/N)$ ...
436 views

### Stepwise Cointegration

This is more of a general question at this point, but if my thought process makes sense I will follow up with an R implementation. I have read a number of papers on cointegration analysis for pairs ...
121 views

### Endogeniety of Black-Scholes

I know this is a naïve question but how does the BS formula have a closed form solution? It seems from what I am reading Price impacts delta, price influences volatility which in turn influeces delta ...
336 views

### Examples of investable factors via factor funds/ETFs

In the draft chapter about hedge funds of his forthcoming book Andrew Ang postulates the dawn of new factor funds (p. 35 ff.), i.e. funds that directly target factors like volatility, value-growth, ...
488 views

### Kolmogorov-Smirnov test

Is Kolmogorov-Smirnov test self-sufficient to prove normal distribution of a time series? And then test efficiency of a market?
1k views

### Is drift rate the same as interest rate in risk-neutral random walk when using Monte Carlo for option pricing?

When using following risk-neutral random walk $$\delta S = rS \delta t + \sigma S \sqrt{\delta t} \phi$$ where $\phi \sim N(0,1)$. Now when a text mentions drift = 5% does that mean that interest ...
2k views

### Theta's effect for OTM options

How does $\Theta$ change for deep out-of-the money options? Looking at the below graph, it seems the time decay is highest for ATM options and increases rapidly as we approach maturity of the option. ...
175 views

### Reasoning behind multiple names for the equivalent risk measures AVaR/ETL/ES/CVaR

Doe's any one know the history behind, or background of the multiple naming conventions for the equivalent risk functions. Different quant authors prefer using different names, does any one know why? ...
462 views

### Scanning a stock database for errors/flaws

I'm currently working on some matlab code that is supposed to check a stock database for any errors (missing values, wrong values, etc.). The reason for this is that after reading this post I came to ...
400 views

### Doesn't a perpetual option contradict the Black-Scholes framework?

A standard example when learning to price American options is the perpetual American put. This is a put that has no expiry (or you can consider T = infinity). The standard solution prices this using ...
4k views

### How to detect and adjust for stock splits? [duplicate]

I am using a large daily data panel for over 250 companies and over several years. I am concerned about adjusting for stock splits. Is there any program in SAS to detect stock splits? How do I adjust ...
491 views

### Correlation decay in lognormal distribution

I noticed that if you use two correlated geometric brownian motions, the correlation structure decays in time pretty fast even for really high correlation values. I think that is not replicating ...
227 views

### Is Optimization ignoring correlation valid?

I have a fairly pedestrian optimization problem: Max sharpe, subject to a x% vol target. I have a set of expected returns, asset vols and a correlation matrix. I am finding that when i set the off-...
542 views

### main arbitrage & statistical arbitrage concepts

can we please summarise here some of the basic concepts, tools used in arbitrage and statistical arbitrage in real life? ARB: benefit from price difference on same asset ARB: difference between ...
596 views

### Yield on Fixed income futures

I am trying to get a simplified model of the DV01 for the US 10YR Note futures but I cant figure out what the current yield is. When I back out the implied interest rate on the current TYM3 futures ...
613 views

### Calculate the expectation of a shift CDF

Suppose $X$ is a normal random variable with mean 0, and variance $\sigma^2$. $F(x)$ is the CDF(cumulative distribution function) of a standard normal random variable(mean 0 and variable 1), how to ...
726 views

### Pairs trade CDS contracts using cointegration

Recently I have looked at some sovereign CDS spreads (of the Nordic countries to be precise) and have tested for cointegration in the levels (i.e. untransformed) and logs of the spreads. Tests ...
210 views

445 views

### compute time from FX forward, how use DEPO rates?

assume I have following delta-term vol data from broker: ...
475 views

### Predict Market Direction, What is forecastable/unforecastable?

Let's decompose the return process $R_t$ as follows : $$R_{t} = sign(R_{t}) * |R_{t}|$$ What's part of the equation is forecastable?
2k 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 ...
969 views

### Calculating Momentum From Returns

I am doing some modelling and have some data: ...
1k views

### Pairs trading: Question on non-negative profits, size of the positions and trading signals

I'm trying to backtest Pairs Trading but have become a bit confused on the different methods of selecting pairs, how to look for trading signals and what size of the positions to take in the assets. ...
529 views

### Is there a comprehensive reference book on US fixed income conventions?

In Canadian fixed income markets there is a nice handbook called Canadian Conventions in Fixed Income Markets (PDF). It contains detailed market standard pricing formulas for calculating prices, ...
592 views

### Improving GARCH modeling approach

Modeling Exchange Rate Using GARCH Let's consider the following exchange rate : USD/JPY For each sequence, we consider changes in the daily difference between the highest price and the open price of ...
530 views

### How to calculate tracking error given mismatches in available data

Apologies if this is an overly simple question. I have a series of stock returns, and I would like to estimate my portfolio's ex-ante tracking error versus the benchmark (S&P 500) given the ...
213 views

### Comparing Cash Equivalent of risky portfolios

To compare two risky portfolios, Mean-Variance (M-V) portfolios for example, many compare their Cash Equivalent ($CE$). $CE$ is defined as the amount of cash that provides the same utility as the ...
681 views

### Stability of correlations and volatility

I had a discussion recently about the stability of volatilities and correlations. If we take for example stocks and bonds (think of DAX and Bund) then I have seen changing volatilities (something like ...
72 views

### How to model housing loan market?

Housing loan market vibrates according to the policies, such as LTV rate, for example, if must pay 20% downpayment, LTV rate would be 80% interest rate, for example, lifting the loan rate, the ...
3k views

### How to distinguish between different types of algorithmic trading

Algorithmic trading involves the use of algorithms to optimally execute trading instructions. Then there are algorithms which initiate trades, based on various quantitative strategies (e.g. pairs ...
240 views

### EUR/PLN and EUR/USD delta-term-vol surface quoting convension

does anyone know for sure what is the FX market convension to quote delta-term pairs for EUR/PLN, for EUR/USD. I know that for EUR/PLN it should be delta p.a forward, for EUR/USD it should be delta ...
315 views

### compute FX forward from broker's data

assume I have following delta-term vol data from broker: ...
265 views

### Regression in liquidity risk model of Jarrow/Protter

In the paper "Liquidity Risk and Risk Measure Computation" authors describe a linear supply curve model for liquidity risks in presence of market impact, i.e. impact-affected asset price $S(t,x)$ is ...