All Questions

2k views

What does leverage cost?

Let's say I've developed a strategy that always outperforms the S&P-500, let call it the "magic strategy". Now I should be golden. All I need is to always have the S&P shorted with the same ...
2k views

Non-SQL methods for high-frequency accounting?

Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual ...
429 views

Can we use White's reality check to compare two Sharpe ratios?

I read a paper from Ledoit and Wolf that proposes a method to compare two Sharpe ratios and a paper from White that proposes a method to compare $n$ trading rules. My question is: Can we use White's ...
90 views

how to identify similar assets based only on a few price samples

Using quantitative finances techniques on limited information, how might one go about finding similar(highly correlated) assets whose public information is available? The only data offered on a list ...
444 views

Is it possible to demonstrate that one pricing model is better than another?

Take the classic GBM (geometric Brownian motion) model for equities as an example: ds = mu * S * dt + sigma * S * dW. It is the basis for the classic ...
149 views

Assumptions based on non-martingale?

Quantitative finance formular are mostly based on martingales, Poisson jump, GBM, CEV, etc.. The logic behind it is that martingale means the future could not be predicted, or, EMH (Efficient-market ...
314 views

age-sensitive correlation measurements in finances

When it comes to comparing returns or prices of instruments like stocks/ETFs, are there any well-established formulas, or ones in common use, that place stronger emphasis on recent correlations more ...
7k views

Where can I find some examples of high frequency or stat arb trading algorithms beyond basic textbook pairs trading?

In particular, http://en.wikipedia.org/wiki/Algorithmic_trading#Algorithms has several name algorithms. I understand most HFT algorithms are proprietary but I am looking for examples of HFT ...
657 views

portfolio diversification tester

Are there any online tools (optionally with developer API, to spare me the scraping) that given an existing portfolio, calculate how well a new candidate position would score to increase combined ...
262 views

What are some quantitative ways to obtain the view confidences in Idzorek's version of Black-Litterman?

I'm using Idzorek's version of the Black-Litterman model for estimating asset returns. Idzorek's version bypasses the need to estimate directly the covariance matrix $\Omega$ of errors in the various ...
230 views

Market order quantity greater than quantity of the inside quote at the exchange

If I send a market order to an exchange with quantity greater than the quantity of the inside quote at this exchange, and if another exchange has quantity to fill the residual portion at NBBO, will my ...
717 views

Kalman Filter Vs Hough Transform

These questions are in regards to the Kalman filter and the Hough Transform. What are the Pros and Cons of using each method? In what situations is it better to prefer one over the other?
1k views

Limit order book size

I am trying to write a highly optimised limit order book and I wondered what sort of size I can expect for: Range of limit prices Number of orders at each limit price I am developing custom ...
741 views

Modified bisection formula for deriving implied volatility for a dividend paying american option

I am trying to work out the formula for calculating the implied volatility of an american option on a stock paying dividends (discrete payments or annualized yield). On page 171 of Haug The ...
2k views

Is there an open source alternative to Reuters Kondor+?

Basically, I'm looking for a system which have trading(in a demo account), book keeping, profit/loss and risk calculation capability across different asset classes such as bond, repo, equity, foreign ...
1k views

How to calculate COMPOSITE underlying implied volatility from ATM (near month) option prices?

I am trying to calculate the implied volatility of an underlying given observed prices of call and puts. There are two scenarios: The ATM strike is pinned by the market (i.e. underlying level == ...
642 views

SKEW and VIX relations?

My question is about the CBOE published index VIX and SKEW. To start with, I consider working on the variance dynamics. I calibrate the market data (such as VIX and VIX futures) into the Heston ...
544 views

Suppose you backtest the EUR/USD (or GBP/USD) forex pair with this system on the 1min timeframe: 1) Enter the market at any time n: go long if the "future" bar n+1 has a higher close as the close ...
473 views

Creating an n-factor Certainty Equivalent Discounting Formula

Brealey & Myers provide a certainty-equivalent version of the present value rule, using CAPM, as follows: $$PV_0=\frac{C_1 - \lambda_m *cov(C_1, r_m)}{1 + r_f}$$ $PV_0$ - Present Value of cash ...
361 views

Simulating the joint dynamics of a stock and an option

I want to know the joint dynamics of a stock and it's option for a finite number of moments between now and $T$ the expiration date of the option for a number of possible paths. Let $r_{\mathrm{s}}$ ...
1k views

How to fit probability density function from sample moments?

If I have calculated the sample mean, variance, skew and kurtosis of a set of data, how would I go about fitting a probability distribution to match these moments (i.e. choosing a probability ...
5k views

What are the main differences between discrete and continuous time models when modeling asset price dynamics?

My intuition says that both approaches, discrete time models and continuous time models will be models (i.e. approximations) of reality. Therefore it should be possible to develop useful models in ...
6k views

How to annualize log returns? [closed]

I have daily log return from 01.01.2011 to 10.28.2011 and I'd like to compare the total return of that 10 months period (which is of -7.093%) to annual log returns of previous years. I know it's ...
281 views

How to use volatility to assess the accuracy of a stock market model?

Background: For a dissertation I have a multi-agent stock market model that I am using to assess different mechanisms for producing particular dynamic regimes. A key point is assessing how closely it ...
131 views

Calculating stock weight for SEC13F filers

I am trying to evaluate weight of stocks in portfolio for an investor. For this purpose I use SEC13F filings for particular quarters and historical prices from Yahoo. There are stocks in portfolio ...
475 views

Discrete time Ho lee model

This is my first question in this forum. I am stuck with my current testing the Ho Lee model. I am having difficulty computing the perturbation factor $\Delta$. The ho lee model should be completely ...
365 views

local price return and volume relationship

I wanted to see how the stock price and volume relationship is locally. So I tried ranking both the daily return (at day t) and volume (at day t) base on a 30 day rolling window with historical daily ...
5k views

CAPM - Beta of zero and its implications on diversification

I don't know if this is the right forum in which to ask this question, but here goes. I'm working through Luenberger's Investment Science. The form of CAPM model given in the book is \bar{r}_i - ...
735 views

Quantitative Analysis Games on Investing?

I have been playing a quantitative investing game (instructions here) that is actually quite interesting, teams have some time to decide their next moves. It requires all kind of knowledge such as ...
456 views

copula-marginal algorithm

has there been any interesting work or advances on the copula-marginal algorithm (CMA) as proposed by Attilio Meucci. I am unable to find anything on the web other then the original article, here is ...
8k views

Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
283 views

vix futures vega per contract and tvix vega per share

How much vega in spx terms (straddle contracts) or dollar value is in 10 vix futures contacts and 10000 shares of tvix
891 views

What is the expected return I should use for the momentum strategy in MV optimization framework?

As all research on the momentum strategies are focused on the indicator, i.e. the entry point, there seems not much discussion on its expected return? Though there are some discussions on the exit ...
516 views

ATM volatility versus OTM volatility and directional standard deviation

The forward instrument vol curve is skewed to the downside (50 delta risk reversal, 25 put, 25 call) were trading several ticks to the put). Is there a smaller standard deviation (in price terms) to ...
871 views

How are Expected Shortfall and Variance related?

I would like to know how Expected Shortfall $SF_\alpha$ and variance $\sigma^2$ are related. If I follow what Aaron Brown answered in this post, when the underlying distribution is Normal with ...
458 views

How can I get intra-day prices via API into R?

I am able to retrieve prices for IVV using this code library(quantmod) getSymbols("IVV") names(IVV) [1] "IVV.Open" "IVV.High" "IVV.Low" "IVV.Close" ...
766 views

Can I perform an asset allocation optimization if assets are perfectly uncorrelated?

(Here is a link to the original post) I received this interesting problem from a friend today: Assume that you are a portfolio manager with \$10 million to allocate to hedge funds. The due diligence ...
426 views

Pricing a bond future with a basket of deposit futures

I have a future on a two-year UK government bond that I wish to price. The bond future expires in 3 months. I was thinking of building a portfolio of 3-month deposit futures (1 x 3 month deposit ...
4k views

Estimation of Geometric Brownian Motion drift

One can find many papers about estimators of the historical volatility of a geometric Brownian motion (GBM). I'm interested in the estimation of the drift of such a process. Any link on this topic ...
353 views

Is there any measure that is a non-trivial combination of VWAP and TWAP?

Is there any measure that is a non-trivial combination of VWAP and TWAP? For example: $$\textrm{VTWAP} = \frac{\textrm{VWAP}+\textrm{TWAP}}{2}$$ I'm thinking about ...
483 views

What's the connection between implied vol curve of SPX and SPY?

I think there should be an obvious connection of the two implied vol curves from the SPX and SPY markets since the underlying of SPX is SP500, while the underlying of SPY is a ETF which tracks sp500 ...
700 views

How to calculate cumulative loss from two factors that have negative correlation?

I went through the most advanced books on statistics and still can't find an answer. There is a well known formula for combining volatility of two correlating variables, but what about adding the ...
519 views

Why are there so many different ways of calculating historical volatility

There appears to be several ways of calculating volatility: Price volatility (of which there are several variants): close to close high low range average of open, high, low and close Log returns ...
1k views

I overheard someone at work today talking about a commodity spread option pricing model and he was asking our quant if he should use price volatility instead of return volatility as the volatility ...
1k views

Is Visual Basic a fast enough for millisecond orders

I have an API that for an order routing platform that is in visual basic. The maximum frequency or orders to exchanges will be milliseconds, where the underlying systems are expected to be able to ...
118 views

How to remove the risk element from a set of fixed rate mortgage offerings?

Kept waiting in the bank yesterday, with no paint to watch dry, I found myself staring at the mortgage rates. (These are all annual interest rates): Variable: 2.475% 1 year: 2.90% 2 years: 3.05% 3 ...
631 views

How to minimize the difference between a parametric VaR and a MC-VaR with lognormal assumption?

Given that we want to find the Value at Risk for a portfolio of stocks only, there are two main methods to proceed. In the problem, we also assume that stocks follow a geometric Brownian motion. A ...
813 views

Where can I find data on the interbank lending market?

Where can I find disaggregated interbank lending data (i.e. bank A lends to bank B x money at y rate)? I could only find data on interest rates. I would accept LIBOR market data as well as any ...