5
votes
2answers
349 views

Most natural generalization of covariance/correlation to model dependence of extreme events

One of the most serious shortcomings of covariance/correlation are the assumptions of linearity and normality. What is the most natural generalization of these measures of dependence when you want to ...
3
votes
1answer
2k views

what is the implied volatility on a basket of options

If I have 4 optionable stocks A,B,C,D and each different implied volatilies,IV-A,IV-B,IV-C,IV-D. How do get the implied volatility for a basket option on A,B,C,D where the basket weights are w-A=.6, ...
2
votes
1answer
205 views

How to enumerate all the possible portfolios with a given target volatility?

Let's say I have $n$ assets and their returns are stored in a matrix $X \in \mathbb{R}^{m \times n}$ (i.e. I have $m$ returns for each of them. The covariance matrix of the returns is $\Sigma \in \...
3
votes
2answers
3k views

price of a “Cash-or-nothing binary call option”

I'm stuck with one homework problem here: Assume there is a geometric Brownian motion \begin{equation} dS_t=\mu S_t dt + \sigma S_t dW_t \end{equation} Assume the stock pays dividend, with the ...
4
votes
2answers
962 views

Using the termstrc package in R

I am attempting to use the function estim_nss from the termstrc package in R to find the spot curve from constant maturity rates published by the Fed. I am using this package because I will need to ...
6
votes
4answers
962 views

How to cluster ETFs to reduce cardinality for portfolio selection

I'm looking to run portfolio optimizations using various optimization goals - e.g. minimum variance, max diversification etc. My challenge is if I want to do this on ETF's which ones do I pick to run ...
-2
votes
1answer
623 views

Target daily ROI for a market-making algorithm

I'm designing a market-making algorithm, I was wondering what a decent ROI / day would be to aim for in such a system?
1
vote
2answers
279 views

round price to tick size

I have an issue about rounding price to tick size. Suppose there is price tick table below. what is tick size for price 1001, 1002 ... 1004? In other words, how to handle the price in between upper ...
1
vote
0answers
42 views

How does a covered bond characteristics compare to a mortgage security for credit enhancement?

I need help with understanding how does a covered bond characteristics compare to a mortgage security for credit enhancement?
2
votes
3answers
2k views

Is MATLAB-generated code good enough for use in live trading?

I know that MATLAB has mechanisms for generating code, but I've never used them. Have you? If you have - is it good enough (=fast enough, I guess) to be used in live trading systems? Anything one ...
1
vote
2answers
1k views

Calculating true value of a stock given the order-book and recent trades

I'm trying to calculate the 'true value' of a stock listed on an exchange. I have access to the limit order-book (containing all bid/ask quotes) and also all trades which have taken place (which ...
0
votes
1answer
221 views

Price difference between bond cash and futures

I used to trade German and US govt. bond futures and I am now having trouble understanding the price difference of these markets against the cash market. For example, the 10 year german government ...
2
votes
1answer
113 views

Limits analysis

I have a few time series of models to analyse in terms of how far/close they are to their underlying limit. The limit is a simple value on the y-axis (always positive), and the series can act ...
5
votes
1answer
245 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 ...
15
votes
7answers
5k views

What are the best Journals & Conferences in Quantitative Finance?

What are some of the most prominent journals, conferences and publishing venues in Quantitative Finance research? Where can I find information more information about them? (e.g. impact factor and ...
1
vote
0answers
438 views

How to calculate cf and interest accruals of the swap?

How to calculate to calculate daily interest accruals and cashflows for the full term of the swap, given notional, effective date, maturity date: (total one year), accrual: ACT/360 payment: semi-...
5
votes
4answers
696 views

Regressor: Nominal return, continuous return or first difference?

Suppose the application is linear models in financial econometrics. If we want to analyze stocks, the standard approach is to take the continuous/log return: $\ln{ \frac{P_t}{P_{t-1}} }$. Suppose, ...
-2
votes
1answer
349 views

How to get a Quant Job [closed]

At the end of the academic year I will graduate with a Computer Science degree (hopefully) and I would like to peruse a career in quantitative finance. What is the dest way of doing this? Is it worth ...
-2
votes
1answer
174 views

Managing Bloomberg logins in a campus library [closed]

In a campus library or other public place, typically many people share the same PC with the Bloomberg terminal software. Is there a way to prevent users from creating new logins? Is there a way to ...
1
vote
3answers
6k views

Annualized Covariance

I have two time series. One with monthly returns on an asset and one with monthly returns on a benchmark index. I have calculated the covariance using the ...
4
votes
1answer
572 views

Applying interest rate shocks under Solvency II

I'm trying to figure out how one would apply the stress scenarios defined under the interest rate risk sub module of Solvency II. I understand that all future cash flows of an interest rate sensitive ...
0
votes
1answer
397 views

Using OpenCL video cards to offload Quant Finance calculations, what features should I look for?

I'm benchmarking some software and am looking for cards that are better at parallel multiplication vs parallel addition. Is there any prior work that may have this information? What GPU features ...
0
votes
1answer
192 views

Cloning Return Streams

How would one go about cloning/replicating returns of a hedge fund or a strategy. That is given a return series of the object to be clone, is it possible to decompose return and reconstruct another ...
-1
votes
1answer
114 views

Regression extensions

I'm trying to find extensions for my regression and obviously would like to use PE, BV and CFO. But I've got monthly data, while all company's fundamentals are semi-annually... Can I deal with it ...
8
votes
4answers
859 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 ...
5
votes
2answers
2k views

Basket option pricing: step by step tutorial for beginners

I would like to learn how to price options written on basket of several underlyings. I've never tried to do it and I would appreciate if you can provide some documents, papers, web sites and so on in ...
1
vote
1answer
356 views

Probability of trade's exit orders being triggered in random-walk market

When placing a trade with Stop Loss and Take Profit orders in a hypothetical random market (i.e. 0.5 probability of up tick and 0.5 probability of down tick), assuming: x is the distance in ticks of ...
2
votes
1answer
216 views

Simple question about stochastic differential

What is the equivalent of product rule for stochastic differentials? I need it in the following case: Let $X_t$ be a process and $\alpha(t)$ a real function. What would be $d(\alpha(t)X_t)$?
3
votes
0answers
398 views

Monty Hall Model

Given a fixed time period,say 3 days, the stock/market can go up,down or stay sideways. A hedge fund can long, short or use rangebound(options strategy) to bet for that 3 days closing level. Hedge ...
2
votes
1answer
1k views

hedging two bonds in different currencies with FX forward

Is there a way to make a hedged portfolio using two bonds, one is in EUR, the other one is in USD and FX forward contract? Assume that FX rate follows geometric Brownian motion movement.
0
votes
4answers
548 views

How to do performance attribution for a few characteristics?

Let's say the characteristics that I am interested in are FX Country Security selection I have the benchmark weights and returns, the FX returns, and the portfolio weights and returns. Can ...
2
votes
2answers
968 views

Should I use GARCH volatility or standard deviation in cross-sectional regression?

I want to do a cross-sectional study where the historical, medium-long run volatility of some return series (call it $R_t$) is included as a regressor. Which of the following two estimates of ...
2
votes
3answers
5k views

Interpretation of Macaulay Duration

I am having a difficulty conceptualizing the meaning of "Macaulay duration" - I want to note I completely understand the math, this isn't the issue. Modified duration & Efficitive Duration make ...
2
votes
1answer
213 views

Model-implied yield spread on corporate bonds

While using Merton (or any other) model, is the model-implied yield spread on bonds greater than actual yield spread? And is it possible to estimate actual probablities of default?
3
votes
1answer
1k views

Understanding Passive Rebate Arbitrage

I was reading a BMO paper which offered the following example of passive rebate arbitrage: "For example, if BBD.b is trading at $4.71 - ...
4
votes
1answer
425 views

Reasonable Hull & White parameters

I am using a Hull & White model to simulate forward rates on US swap curve from the 1.10.2012. This is a part of a bigger picture, and I am interested in some reasonable values for the parameters ...
0
votes
1answer
4k views

Calculating pre-tax cost of debt

This is a simple problem but I'm not sure about one aspect of it. A company has 15 year bonds outstanding, with a 5% annual coupon, a face value of \$1000, and a current market value of \$1100. ...
3
votes
0answers
159 views
3
votes
3answers
13k views

Kalman Filter Equity Example

I am looking out for some material where I can study about Kalman Filter applied to Equity using Excel or R?
3
votes
1answer
235 views

Risk management insurance (Solvency II / MaRisk)

I have a few different questions on topics involving an doing risk management in life insurance. If someone could shed some light on these issues, I would be very thankful. a) How does an actuary do ...
4
votes
0answers
105 views

Estimating two normal random numbers with one equation

Subtitle: Estimating the correlation of the shocks driving two commodities in two multi-factor models I am fitting two 2-factor models to electricity and gas futures, respectively. In order to ...
3
votes
1answer
359 views

Is it possible to model general wrong way risk via concentration risk?

General wrong way risk (GWWR) is defined as due to a positive correlation between the level of exposure and the default probability of the counterparty, due to general market factors. (Specific wrong ...
2
votes
2answers
871 views

Forex ECN for Algorithmic Trading

I'm looking for a forex brokerage that allows me to: add limit orders to the order book and trade against other clients However, when I look at the looks of fxcm, alpari, robofx, ... it appears all ...
2
votes
3answers
3k views

What advanced statistical techniques are quant researchers using? [closed]

Some time ago I was talking to a representative of one of the leading quantitative hedge funds. We talked about recruitment and the following had me stunned: The representative explained that they ...
0
votes
3answers
266 views

Profit estimation with a dice: 10 dollars for 6, -1 dollar for anything else

I recently found the following question: What is your profit estimate throwing a dice in the long run if you get 10 dollars for each time you hit 6 and lose 1 dollar for any other number? I tried to ...
6
votes
2answers
1k views

What is the average stock price under the Bachelier model?

Let's say stock price follows following process: $$dS(t) = \sigma dW(t)$$ where $W(t)$ is Standard Brownian motion. The initial level for the stock is $S(0)$. Define the average of stock price $Z(t)...
6
votes
2answers
573 views

Why are regressors squared and not ^1.5 or ^2.2 or ^2.5?

When a researcher in economics or finance wants to apply a linear regression model but suspects a non-linear relationship between one of the regressors and the dependent variable, it is typical to ...
10
votes
2answers
439 views

GBM 3d plot with R

I want to plot the density of the GBM in a 3d plot. So I have on one axis the stock price, on the other the time and on the z axis the density. At the end I want to produce this graph. The formula I ...
7
votes
1answer
410 views

How does one estimate theta in the Ho-Lee model from a yield curve?

I have a yield curve constructed using linear interpolation with data points every 3-months for US treasuries. I would like to use that calibrate a Ho-Lee model, but I can't wrap my head around how ...
5
votes
5answers
1k views

How to improve the Black-Scholes framework?

Since the distribution of daily returns are obviously not lognormal, my bottom line question is has BS been reworked for a better fitting distribution? Google searches give me nada. The best dist I'...

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