# All Questions

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### Is the European call option delta an increasing function of the spot?

In the Black-Scholes' setting, the delta hedge ratio of a European call option is given by $N(d_1)$, which is an increasing function of the underlying equity spot $S_0$. Does this property hold ...
54 views

### Portfolio Optimization with equal weight for assets selected

I have a data frame of bets, with 1 being a win and 0 being a loss. These bets are correlated so I cannot just pick the highest winning percentage. Goal is to get 2 optimizations, 1 for max sharpe ...
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### copulas and time series

Can anbody explain how Copulas are used to describe the dependency between, for example, the return on two different stocks? I understand how Copulas are the "glue" that binds the two marginals ...
45 views

### simple game - fair value

Suppose a person A has the following game: there are 2 red balls, 2 green balls and 1 white ball in a bag you take 1 ball (don't put it again in the bag) and then a second ball if you take the white ...
51 views

### Fourier transform covariance estimator

I am estimating realized variance and covariance by the estimator described in this paper, and relying on Fourier Transform. Now, as my data is one day of data in ultra high frequency, so that the ...
82 views

I'm currently working on the requirements phase of a software project, and need get an overview of the industry regarding the tools available for Algo Trading. My first idea was to look for Gartner's ...
73 views

### Match different option high frequency databases

I downloaded the “E-mini S&P 500 (Dollar) Options for 1/10/11” Top-of-Book (BBO) data. If you are interested you may download the data from the following link (approx. 80MB zipped and 1GB ...
40 views

### Fair Price CDS Spread for a Bank

I have been using CreditGrades to calculate fair one year CDS spreads for firms. However, the authors of the model explicitly say that the model does not hold for banks or financial firms. If I need ...
73 views

### Comparing Implied Vol. to Historical Vol. using intraday data

I'm interested in estimating what my profit/loss would be for continuously gamma scalping a delta hedged option over the course of one day, using historical intra-day price data. I found an equation ...
80 views

### Adding Asset Weights To Cholesky Output - Monte Carlo in VBA

I am looking to create a Monte Carlo generator in Excel to plot correlated asset paths for a portfolio containing 1 to 10 assets. I have the correlation matrix for all 10 assets and have performed the ...
161 views

### Formula behind pandas.Options() implied volatility

I noted that implied volatility (IV field) from pandas.Options class is very different (especially, for out of money options) than what I compute with Black-Scholes model. (risk free rate is pulled ...
84 views

### Triangular Arbitrage with CFD

I cannot understand how the triangular arbitrage fits with CFD. Assuming there is an arbitrage opportunity: EUR/USD < USD/GBP * GBP/EUR If I do this strategy: 1 Long on EUR/USD at Ask price 1 ...
42 views

### Motivation for hedging volatility using VIX ETNs

i wondered what the motivation for professional investors could be to engage in VIX ETNs. Would they even think about trading this kind of product? (they normally should have access to VIX options, ...
15 views

### Scalar and vectorial sensitivities

In a recent discussion about the implementation of the calculation of derivative sensitivities, the notion 'scalar' and 'vectorial sensitivities' were used. I am not familiar with this notion and ...
56 views

### “Spot rate is not observable” meaning

In Bruno Remillard's text, "Statistical Methods for Financial Engineering," he states the following on p 148 after giving the general form of a bond price $P(t,T)$ under Vasicek's model: Note that ...
86 views

### Determining the investment strategy

I have the following problem: Consider the 5 year investment strategy and given the yearly portfolio returns $S_{t+1}/S_t$ and dividends $D_{t+1}$ paid at $t+1$ which are modeled as: ...
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### Construction of bond portfolio represented by a CDS-Index

Markit publishes investable basket CDS indices. These are indices intended to track the credit risk of a basket of issuers (e.g. in the case of iTraxx Europe Series 24 these are 125 names) in an ...
84 views

### Turnbull & Wakeman Asian - not Edgeworth?

My understanding is that Turnbull & Wakeman derived an approximation formula for continous arithmetic Asian option using Edgeworth series by matching the first two moments. However, in the book ...
112 views

### Application of time series analysis to Bitcoin prices

Various exchanges allow for the trading of Bitcoins. The price of Bitcoin was very volatile since the inception of the system, today it is 391.76 USD: I wonder whether time series analysis tools ...
51 views

### state space for affine yield curve

i would like to reproduce in R the working paper " Affine free arbitrage class of Nelson Siegel term structure". The authors considering the equation of nelson siegel plus an adjustment term(C(t,T)) ...
49 views

### affine arbitrage free class of nelson siegel yield curve

I'm studying statistics for finance at university. Last week i read the working paper on "The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models". I would like to reproduce in R ...
25 views

### Soft: Interpretation Fractional BM in finance

Suppose we are in the BS framework. If we replace the Brownian Motion with a more general fractional Brownian motion therein, how can it be interpreted? That is what is a financial interpretation of ...
161 views

### How to add buy/sell market on a long/short Bollinger Bands graph in python?

I am using python, pandas, matplotlib to do the following: I have plotted some stock data ...
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### Commercial Vendors for Risk Management and Portfolio Optimization and Performance Attribution

So this question is directly about companies such as Axioma, Barra, Northfield, and etc. that provide risk management, portfolio optimization, and performance attribution related services. I want to ...
47 views

### Returning historical yield rates for Mortgage Backed Securities in a Bloomberg Terminal?

Forgive me if this isn't the right place, and direct me to the correct place to post. I've been trying to figure out how to get the yield rates for Mortgage Backed Securities (MBS's) in the United ...
35 views

### Generalized method of moments concept in CAPM testing

In the course of my master thesis I’ve come across a paper by Carr and Wu (2009) where the authors evaluate whether returns on variance swaps can be explained by the simple CAPM. (really only market ...
75 views

### How to calculate break-even point of merged plant/company?

The question goes like this : ...
64 views

### Monte Carlo simulation of Multifractional Brownian Motion in MATLAB

Code under is taken from http://en.literateprograms.org/Monte_Carlo_simulation_(Matlab) ...
78 views

### Risk-Free Rate In CAPM

Let's start out with the CAPM equation itself: $E(R_i) = R_{f1} + \beta_{i}(E(R_m) - R_{f2})$ Are there cases where one should choose a different $R_{f1}$ and $R_{f2}$ (Risk Free Rates Of Interest) ...
50 views

### How to handle missing data in time series in R?

I have 5 years stock closing price of a company with some missing values in between (I having 1443 data points). When I create timeseries object in R with frequency 365 it creates 1834 data points, R ...
30 views

### negative transition probability in trinomial trees

I was pricing a option with big dividend in the underlying. However, I got negative transition probability in a trinomial tree. Will it cause arbitrage? Does anyone have reference paper or book ...
37 views

### Impact / slippage model for open and closing crossing auctions?

The general impact model for trading a VWAP order throughout the day has the form of: $\alpha \cdot \sigma_n \cdot \text{(participation rate)}^\beta$ I'm looking for an impact / slippage model of ...
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### State of Art - Nelson Siegel Modeling

My idea is to work with dynamic Nelson Siegel models(DNS) on my master's thesis. As I am finishing undergraduation this year I started researching on the subject. I wonder what is being discussed in ...
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### Calculating PnL from log prices

I'm backtesting a statistical arbitrage strategy. To calculate the PnL I simply use $Y(t)-Y(t+n)$ for the profit on the first leg and $\beta*X(t) - \beta*X(t+n)$ for the profit on the second leg, ...
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### Fed Funds Rate - why has it just started decreasing on the final day of each month (vs quarter)

I understand why the Fed Funds rate has historically dropped on the final day of each quarter, but in 2015 it appears that the effective Fed Funds rate now drops on the final day of each month as ...
14 views

### Just how transparent are CDOs?

Not sure if this belongs here on on money SE. Just how transparent are CDOs? Would the ultimate investor have insight into the underlying collaterals or just an overall tranche rating? Has ...
40 views

### Is there anyone tried to use simultaneous stochastic differential equations?

I am looking for some examples or attempts of using simultaneous stochastic differential equations for financial analysis but there has been none so far. Is it just so nasty to apply such thing in ...
51 views

### Transforming Variables in time series regression

I have multiple quarterly time series data and trying to build a linear regression model using this dataset. Should the transformations on the LHS and RHS be the same i.e QoQ percent changes? Could ...
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### Sample data of quarterly (annualized) real GDP growth

I am looking for a database that provides me the quarterly (annualized) real GDP growth (quarter t and t-1) of US, Germany and England. For the US data i went here: ...
76 views

### How to hedge an ETF position with a basket of its underlying components

In practice, when one takes on a large equity ETF position, I would imagine it's not necessarily "optimal" to hedge using a basket of all the constituents even though that should be a perfect hedge. ...
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### Joint tests of market efficiency - Is it possible to test market efficiency with either one?

Tests of market efficiency are the joint tests of (1)the market is efficient and (2) expected return model. Please help me (a) explain this and (b) is it possible to test market efficiency with ...
38 views

### Using a hybrid approach to calculate operational risk capital

I've read that a hybrid approach combing scenario analysis and loss distribution analysis can be used to calculate operational risk capital under the advanced models approach. I've read a couple ways ...
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### Pricing claims of parties in a fund

I'm working on the following problem and would appreciate some input because I'm stuck. Consider a fund that works as follows. The fund starts with $S_0$ worth of assets following a geometric ...
36 views

### Gil-Palaez Inversion Formula in Black Scholes world

I am trying to calculate numerically the price of a plain vanilla call through Fourier Transform, by applying the Gil-Pelaez formula. More precisely, we have that C(K)=S0*Π1-Kexp(-rT)Π2 where ...
22 views

### How to understand stock return comovement

In his book "Asset Pricing" chapter 20, Cochrane said For example, suppose that average returns were higher for stocks whose ticker symbols start later in the alphabet. (Maybe investors search ...
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### Which option pricing models agree best with the market, given the asset price is known?

Assuming you can somewhat forecast the underling asset price movement, and you want to translate this value into the corresponding option price. In practice, which are the better models for this task? ...
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### Multiple similar values simulation

Perhaps some of you came across the following task that I am trying to automate for @RISK, VOSE or other simulation software? I have a question as we are trying to use the software to estimate the ...
122 views

### How to extract sentiment from Yahoo finance message board?

Does anyone know if it is possible to write a software to pull Yahoo message board sentiment for a specific stock? Any API from Yahoo or anyone has done it before?