# All Questions

13 views

### Understanding CAPM, CML, and efficient portfolios

I'm trying to understand the CAPM model and how we can use it to understand efficient portfolios. Specfically, I'm trying to use the CML line (mapping expected returns and standard deviations of ...
341 views

### How to use the stock as a numeraire to price a derivative with payoff of the form $(S_T f(S_T))^+$?

I have $\frac{dS_t}{S_t} = rdt + \sigma dW_t$ as usual under the money-market numéraire and I need to price options with payoffs $$(S_T f(S_T))^+$$ How do I express the stock dynamics using the ...
505 views

### European Swaptions: does implied volatility of swap rates decreases both with start and tenor?

Does implied volatility of swap rates decreases both with start and tenor? Given a Swaption price and a discount curve I calculate the swap_rate from the curve, then I define implied volatility as ...
114 views

### Is there a Bloomberg field for the first trading date after an event?

For example, if a company reports earnings today after the close (6/24), the earnings date would be 6/24 but the field I'm looking for would be 6/25. If they reported tomorrow before the open, both ...
29 views

### Swaption on a swap with 0 year tenor

Any ideas on valuation of IRS swaption on a swap with 0 year tenor? As an example, we have a 5 year swaption, on expiration it is cash settled; the underlying swap tenor is 0 years with excercise and ...
54 views

### Why do volatility and correlation increase in times of crisis?

can somebody please explain to me why volatility and correlation increase in times of crisis? It is connected somehow to the herding effect. But I cannot really explain it. And also why are negative ...
292 views

### Why is the price of a call option with $K=0$ equal to the price of the stock $S_0$?

In a case of a call option with strike $K=0$, then payoff at expiration time $T$ is equal to: $$(S_T-0,0)^{+}=S_T$$ In reality the price of the option on the date of maturity is never equal to the ...
71 views

### Segmented investment to yield same monthly return in each segment

Not an investment specialist, so please excuse the very basic math. Given a lump sum, I need to distribute this lump sum over (x) segments, each lasting (y) years (years can be different for each ...
65 views

### How do you calculate price of non-existant call option on commodity future

I've been stumped on this for awhile now. I'm trying to determine the price of a call option on a commodity futures contract that expires in the future. My issue is that while the future's contracts ...
88 views

### Volatility smile risk (negative effect) on dynamically hedged portfolio?

About last week you can see MSFT call & put option appears to be resembling volatility smile. And then I open trade positions on a 4 MSFT long call option contract (all 4 contract with ...
217 views

### Measuring momentum as AR(1) process

I would like to measure the momentum in the price of a stock from the time the market opens until the time I trade each day. I want to use this momentum number in post-trade analysis (regression of ...
22 views

### Historical index components (FIGIs) from bloomberg?

In order to run strategy simulations, I am trying to build a database of historical equity data using Bloomberg. I can pull the ticker symbols corresponding to the components of an index at any point ...
587 views

### ex ante tracking error correlation between funds

I have two portfolio's called Comb & Global. They both have the same investable universe lets says 3000 stocks & are measured against the same benchmark. So it is possible that both funds hold ...
34 views

### How to rightfully balance the share of the organization between departments after variable changes?

This is an abstracted version of the problem I'm facing and I have to tell you first, my question might not be precise and or even correct, so I hope you understand and in that case can improve the ...
15 views

### Find all possible permutations of asset weights in a given portfolio?

I need to find all possible asset weight combinations for an 8 asset portfolio. Each weight is a multiple of 10 (0, 0.1, 0.2, 0.3, 0.4, 0.5, 0.6, 0.7, 0.8, 0.9, 1) Some assets can be weighted with ...
35 views

### impact model what volatility to use

I am looking at the market impact paper here (http://www.cims.nyu.edu/~almgren/papers/costestim.pdf) and I had a question about volatility on page 11. On page 11 it is stated: "For volatility, we use ...
24 views

### How to use BA ii Plus to calculate the payback and discounted payback period? [on hold]

How to use BA ii Plus to calculate the payback and discounted payback period? Is it simply a matter of pressing another couple of buttons following calculation of the NPV and IRR?
29 views

### How to Calculate Return Option with Forward Measure

I am trying to computing the price of an option at time $t$, with payoff $X = \frac{S_{T_2}}{S_{T_1}}$, at time $T_2$, where $t < T_1 < T_2$. Here how I compute it: Using the forward measure ...
21 views

### efficient portfolio with given risk

Is there a formula to derive an efficient portfolio to maximise the return, x'mu, for a given risk, x'S x (where x are the portfolio coefficients, mu is the mean return for each asset and S is the ...
30 views

### How does RAROC identify capital requirements?

I've read that RAROC is used to set economic capital requirements for different products, projects, business lines etc. Is it just a matter of solving for the required economic capital level to ...
84 views

### open problems in mathematical finance

What are open problems in mathematical finance that use fundamental concepts of mathematics (functional analysis, geometry and topology, algebra and number theory etc.) and not data-driven. I have ...
38 views

### Mean variance efficient portfolios and target returns

If I use mean variance optimisation to create an efficient portfolio with a target expected return of 20% in a year's time and find that the actual return at the end of the year was 24%, what explains ...
39 views

### Quantlib FuturesRateHelper triggers not a valid IMM date error

I'm beginning to use QuantLib with python swig, and trying to build a EUR yield curve, please apologize if this is a dumb question, 1st time user of that library :) I face this error which frankly I ...
35 views

### Is marginal probability of default the same as conditional probability of default?

I'm thrown off by the term marginal probability of default. I've seen it defined by some authors as synonymous term for conditional probability of default conditional probability of default: ...
26 views

### Seasonality of Securities & Dummy Variable Regression Analysis

I have some pricing data for some securities that I am looking at for seasonality. 1 My Data is organized as: Date Ret DVar1 DVar2 ...... date % 1 0 date % 0 1 ...
29 views

### Validating a Credit Scoring Model without Data

Fellow Quants, Suppose you have a credit scoring model that is developed without the aid of statistics, because (unfortunately) there is no historical default/loss data in your portfolio. The ...
21 views

### Why is the volume 0 according to Yahoo! Finance? [on hold]

According to Yahoo! Finance the S&P 500 had a 0 volume on 2015-05-12: S&P 500 Price @ 2015-05-12 Seems like an error? This is the only occurrence of a ...
23 views

### Judgemental credit scoring

I have read that if I want to built a model for a new segment, new product and with only 20 historical cases I should opt for a Judgemental credit scoring tool. With a panel of experts and field ...
234 views

### Distribution of hitting time of the integrated CIR process

If an increasing process $X_t$ has a known Laplace transform $\mathbb{E} e^{-s X_t} = m_t(s)$, define its hitting time $\tau$ to some level $B$ to be $$\tau = \inf\{ u > 0 : X_u \geq B \}.$$ Can ...
305 views

### Value at Risk from Delta of a single asset portfolio

I am trying to figure out the following, for me unfamiliar type of question: Given is a single asset portfolio: the Delta of the portfolio is 15, the value of the asset is 10 and the daily volatility ...
60 views

### Option greeks vs Position greeks

I know that when it comes to delta, you would calculate your position delta (of a stock position) as follows: option delta * position size * 100 For example if I ...
100 views

### Are there references about liquidation, transaction, market impact costs in portfolio optimization

I am looking for some references treating of what I would call liquidation cost market impact cost transaction cost(*) in the usual "portfolio optimization problem under linear constraints". Let ...
15 views

### Solving Black Scholes PDE using Laplace transform with barrier up and in, up and out call option

I tried to finish the option pricing in european barrier up and in, up and out call option using Laplace transform. The barrier option there is a boundary condition. Can you explain step by step ...
35 views

### Comparing a money-weighted return of my own portfolio with a benchmark ETF/other portfolio that is subject to the same cashflows

I am able to calculate the money-weighted return (XIRR equivalent in Excel) of my portfolio. Whilst I can compare this with ‘headline’ returns of ETF’s, Mutual Funds etc, I want to isolate the timing ...
123 views

### Wrong discount factors when finding Nelson Siegel Svensson model parameters

I am trying to determine the parameters for the Nelson Siegel Svensson model and am solving a Non- Linear Optimization problem to do this. Some of the code I have written is below and this is where my ...
43 views

### Comparing volatility using GARCH

Hi, I am investigating if the policy of inflation targeting lowers the volatility of inflation. I have ran the GARCH regression: Inflation(t) = C + Inflation(t-1) + Inflation(t-2) + Error, but ...
34 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 ...
114 views

### Weights Blowing up in PCA

I'm using daily settlement data to get yield levels for a couple of products. From this data I am doing PCA on a rolling collection of the yield levels. I have been using sci-kit learn's PCA function, ...
32 views

### Methods or models to predict activity of clients of a bank

I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious ...
53 views

### Calculating the volatility for Black Scholes

The following problem is from the book by Hull. I did it but I am not sure it is right. I am hoping that somebody here can tell me if I did it right and if not where I went wrong. Thanks Bob ...
18 views

### Credit risk terms differences:

What are the differences between these terms: Contingent Credit Exposure Exposure profiles, Settlement Exposure, Negotiable Paper Exposure. Many thanks!
13 views

### Comparability of random and fixed effects results

I have data of 15 pension funds over 10 years. I want to analyze the relationship between the funding ratio of a pension fund and the asset allocation. First, I do the analysis with the proportion of ...
53 views

### Euler discretization error increasing with number of steps? (GBM, Matlab)

I'm trying to see how the Euler discretization error behaves with respect to the number of steps. To do this I'm simulating a geometric brownian motion and comparing it with it's 'exact' solution. ...
11 views

### Foresight bias in least square monte carlo

Foresight bias means we tend to over estimate the American option value. This we observe in other areas of statistics - e.g. in sample test almost always gives better prediction than out of sample ...
6k views

### Early execise of American Call on Non-Dividend paying stock.

Let us consider an American call option with strike price K and the time to maturity be T. Assume that the underlying stock does not pay any dividend. Let the price of this call option is C$^a$ today ...
73 views

### Can someone explain to me what's snell envelope?

What is snell intuitively? And what is its use in quantitative finance? Please explain to me as intuitive as possible! As I explained in the comments, I am new to this field and I was hoping someone ...
28 views

### For a Fama-Macbeth regression , How does one predict the returns based on the model?

Fama-Macbeth does a two-step regression i.e a time-series and cross-sectional regression and we estimate betas and lambdas, so how does one predict based on these parameters, which one to choose?
8k views

### Why does the adjusted closing price take into account dividends?

I'm trying to get an intuition as to why the adjusted closing price includes a dividend adjustment: $$1 - \frac{dividend}{close}$$ I understand why the adjusted closing ...
I understood the cumulative (aka unconditional) probability of default to be the probability of defaulting in a given period eg: between years 1 and 5. Further $\pi_{cumulative} = 1-e^{-\lambda*t}$ ...