6
votes
2answers
7k views

Square root of time

I am writing about VaR and I am wondering about the following: We can scale the VaR to different time horizons by using the square root of time, which means, that the volatility is adjusted by square ...
1
vote
1answer
67 views

Annual Percentage Rate and Yield

I found references relative to US where the Nominal Annual Percentage Rate or simply APR is defined as the simple interest rate (i.e. proportional to time and without compounding). Instead the ...
3
votes
1answer
2k views

What is the proper way to calculate returns for Pair Trading?

Edit I am assuming that I don't need to use margin account to short here: What is a standard way to calculate return for pairs trading strategy? For example, I bought 100 dollars worth of a loser (L)...
1
vote
0answers
226 views

Data feed that shows individual orders

Does anyone know how I can obtain time and sales data for a stock? Lots of feeds provide the total volume but I would like to see the breakdown of what buy/sell orders made up the day's volume. I ...
1
vote
1answer
133 views

Find a paper about portfolio management

Where to find the following paper of the noble prize Paul Samuelson (2003) “When and Why Mean-Variance Analysis Generically Fails,”. I was looking for it desperately on Google and Google Scholar but ...
4
votes
1answer
221 views

Fitting a non linear AR + GARCH(1,1)-M model

I want to fit the following model to a time series: $$ y_{t}=\alpha_{0}+\alpha_{1}y_{t-1}+\alpha_{2}y_{t-1}^{2}+\lambda h_{t}+\varepsilon_{t} $$ $$ h_{t}=\beta_{0}+\beta_{1}\varepsilon_{t-1}^{2}+\...
5
votes
0answers
445 views

compute time from FX forward, how use DEPO rates?

assume I have following delta-term vol data from broker: ...
4
votes
2answers
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?
7
votes
0answers
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 ...
1
vote
2answers
970 views

Calculating Momentum From Returns

I am doing some modelling and have some data: ...
4
votes
3answers
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. ...
7
votes
2answers
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, ...
7
votes
1answer
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 ...
3
votes
1answer
531 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 ...
2
votes
2answers
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 ...
4
votes
1answer
685 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 ...
1
vote
1answer
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 ...
4
votes
3answers
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 ...
2
votes
0answers
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 ...
0
votes
1answer
317 views

compute FX forward from broker's data

assume I have following delta-term vol data from broker: ...
10
votes
1answer
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 ...
6
votes
1answer
240 views

How to perform Empirical Mode Decomposition?

I am trying to use the EMD applied to EURUSD open price to train a machine learning algo (RVM). I have run only once the EMD on my training set and once on the training+test set. The results on the ...
3
votes
2answers
238 views

Geometric Brownian Motion with non-negative random increments

I am attempting to model a cumulative time-series of a positive integer variable across independent entities. The cumulative series appears to follow a process of Geometric Brownian Motion (GBM) based ...
4
votes
3answers
1k views

How to implement a long-term trade on oil?

I believe that one of the most compelling case of long-term trade is the long position on oil. Fundamentally, it seems quite clear that demands is going to grow in the future as emerging markets start ...
2
votes
1answer
570 views

Does DOM trading using broker data make any sense?

Can I use DOM information from Interactive Brokers? Does it make sense? I assume that it makes sense to apply some volume based algorithms only then when you know this order book, that you can get ...
0
votes
1answer
235 views

volatility Table and BS formula

assume I have implied FX volatility Delta-Term table from broker. I have time noticed as 2M, 3M. what do I have to put into BS formula, is it 2/12 or "count the business days"/"daycount basis"? I am ...
1
vote
1answer
370 views

Good Model Calibration Books/Papers for Common Option Pricing Models

I am trying to find a good book which focuses on the model calibration. I just want to know generally, what are the most common methods of model calibration(such as Black-Scholes Model, Stochastic ...
3
votes
3answers
403 views

Is it worth preserving orderbook structure when building it from individual orders?

Say I'm building an order book and two bids come in at price $p$ and volumes $v_1$ and $v_2$. Which option is better To store the order as $\{p, v_1+v_2\}$ or To store the order as $\{p,v_1\}$ and $\...
17
votes
5answers
26k views

how to derive yield curve from interest rate swap?

According to some textbooks, to derive the yield curve, quote overnight to 1 week: rates from interbank money market deposit, 1 month to 1 year: LIBOR; 1 year to 7 years: Interest Rate Swap; 7 ...
10
votes
0answers
326 views

Optimization procedure for entropy pooling

I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress ...
2
votes
3answers
620 views

Logarithmic returns for realized variance?

I am wondering which method makes more sense when computing log returns. I am trying to compute log returns for realized variance, and I have the opening and closing prices for every minute. Since ...
6
votes
1answer
404 views

Toy models of asset returns

When making simple agent-based models of banking systems to look at global properties (say systemic risk) one of the basic decisions you have to make is how to model returns on external (to the ...
0
votes
3answers
540 views

Why C is still in use especially in area of numerical optimization (instead of C++)? [closed]

Why C is still in use especially in area of numerical optimization (instead of C++) ? C and C++ aren't fully compatible so mayby you know some differances that make the difference ?
15
votes
6answers
8k views

Applications of Fourier theory in trading

What are fashionable applications of Fourier analysis in trading? I have heard vague ideas of applications in High Frequency Trading but can somebody provide an example, maybe a reference? Just for ...
2
votes
2answers
2k views

Fair swap rate of an amortizing swap

Recently I came across the problem of amortizing swaps. This is an agreement, where fixed payments and floating payments (e.g. 3-months LIBOR + spread) are exchanged based on a notional that is ...
5
votes
3answers
773 views

Market weights for Black-Litterman

I'm trying to implement Black-Litterman for an arbitrary selection of assets. One of the input for BL is the "Equilibrium market capitalization weights for each asset". In most examples I've seen, ...
5
votes
1answer
1k views

Looking for a recommendation for a Fund Transfer Pricing modelling book

Recently I started working in a bank as a modeler, one of the possible topic is FTP - Fund Transfer Pricing. After I studied that subject a little on wiki and read a website or two in that field I ...
3
votes
0answers
59 views

Credit spreads vs default events dependence

Reading this note it strikes me that credit spreads and defaults seem not to be commonly modeled jointly (e.g. more or less directly in structural models), but at best with some kind of "ex post" ...
7
votes
2answers
4k views

Fastest news feed APIs targeting high frequency trading?

The Dow Jones elementized news feed API seems to stand out but are there any other machine readable news feeds out there that provide very low latencies that high frequency operations may peruse? I am ...
2
votes
3answers
5k views

How to hedge the fixed leg of a swap contract?

I happened to get this question for Fixed Income Swap contract. (let's assume it's it's not cross currency). If the fixed leg is paying 10% interest rate in this contract, but in the market the ...
6
votes
1answer
430 views

Do futures have predictive value?

Futures closely mirror their underlying, as can be seen in the charts below. Eventually, at expiration, they reach the value of the underlying. However, they seem to show no extra information about ...
2
votes
3answers
287 views

Leveraged and inverse leveraged ETFs - what is the exact defintion?

I just had a quick look at the daily returns for a few pairs of leveraged ETFs - it appears that the percent daily returns do not match perfectly. For instance, looking at FAS/FAZ, the returns for the ...
5
votes
1answer
3k views

How to use Newey West covariance corrector?

I have implemented the following model: daily_vol(t+1) = A*daily_vol(t) + B*weekly_vol(t) + C*monthly_vol(t) + error where vol means volatility, and A, B, C are ...
3
votes
1answer
117 views

How can I evaluate how poor a fit a parametric VaR result would be for a given holding?

I'm currently working on an application that, among other things, computes a one-day parametric VaR for security positions. I understand that the parametric method of computing VaR is a poor fit for ...
5
votes
1answer
3k views

Taylor series expansion (Volatility Trading book) explanation sought

I am currently reading Volatility Trading, I have only just started, but I am trying to understand a "derivation from first principles" of the BSM pricing model. I understand how the value of a long ...
0
votes
1answer
114 views

Reference on SDE driven by jump processes

Are there reference on SDE driven by jump proccesses? e.g. Shepard-Nielson Model
3
votes
0answers
240 views

how to represent financial data as a spatial process

Does any one have a good tutorial , introduction or overview on the web for different ways of representing financial data as a spatial process? Such as those spatial processes often used in geo-...
7
votes
2answers
5k views

Why FX Vanilla Options are quoted in volatility

I've been curious why vanilla options are quoted (and traded) in terms of volatility. Considering that every financial institution has its own options pricing model, volatility as an input would cause ...
7
votes
0answers
651 views

option chain data visualization, sunburst

I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ...
1
vote
1answer
365 views

How to use financial ratios in a factor model?

I am trying to understand how factor loadings in a general factor model are computed. For simplicity sake, lets assume a simple model: $$ R = B \times F + \epsilon $$ $$ R = N \times 1 $$ $$ B = N \...

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