0
votes
0answers
34 views

Upper bound for $\mathbb{E^P}[\,Y_t^4\,] $

Question: Suppose $X_t$ is adapted stochastic process satisfying the condition $$\int_{a}^{b}\mathbb{E^P}[\,X_s^4\,]ds<\infty$$ and let $Y_t=\int_{a}^{t}X_s dW_s$, where $W_t$ is a Wiener process ...
4
votes
4answers
96 views

Compare two time series with different frequencies

Lets say I have two time series $X_t$ and $Y_{t,q}$. As an examples, lets say $X_t$ is a series that measures year over year changes in the level of output of a good (say number of widgets). So $X_t = ...
4
votes
2answers
203 views

Tradable information from BS Implied volatility

These are two follow up questions to: Implied volatility as price transform I understand that the BS model is used as a 'Blackbox' that takes a market price and maps it in a 1to1 fashion to a 'BS ...
0
votes
0answers
92 views

Do Options and Other Derivatives follow any mathematical laws?

I'm interested in abstracting out some properties of options and other derivatives for software library I am implementing. I was wondering if options follow any sort of mathematical laws, for example, ...
1
vote
1answer
34 views

Define the order of GARCH(m.s)

I know that if the order of Arch(m) is over 3, we should use GARCH and GARCH(1,1) was proved to be the best. But was GARCH(1,1) proved to be available for any country's stock market? My result show ...
0
votes
1answer
75 views

Portfolio with a certain pay-off curve

I would like to find a relevant optimization option's portfolio models which can describe a certain pay-off curve (objective function) under same assumptions. For example, assumptions on how to limit ...
3
votes
2answers
39 views

How to replicate a correlation swap using only vanilla options and underlying

Assume I have two assets A and B that are positively correlated most of the time. I'm trading a strategy based on this correlation. Is there a way to protect myself in the event that the correlation ...
0
votes
0answers
26 views

Credit Risk Modelling for Portfolio of Bonds and CDS's

I have a portfolio of bonds and CDS's. I want to compute some statistical measures (VaR, CVaR, CreditVaR) which may help access the risk of the portfolio. So far, I have used the CreditMetrics (...
15
votes
3answers
288 views

Regression model when samples are small and not correlated

I received this question during an onsite interview for a quant job and I'm still scratching my head on how to solve this problem. Any help would be appreciated. Mr Quant thinks that there is a ...
0
votes
1answer
24 views

example regarding zero coupon bonds

This example is from Interest Rate Models: an Infinite Dimensional Stochastic Analysis Perspective by Carmona, René, Tehranchi, M R. I am wondering if the calculation is correct?, he says ...
1
vote
0answers
56 views

Estimate Volatility process

How can I estimate the process $\sigma_{t}$ given in the following paper: Spot volatility estimation for high frequency data. J. Fan, Y. Wang. Does anyone have an idea? Free source Edit: Iam very ...
3
votes
1answer
40 views

Expected number of days inside a corridor

Is there a simple (ish) approximation for the expected number of steps a random walk is within a set of bounds over a given time period? - in particular if i presume log normal and constant vol. If i ...
0
votes
1answer
23 views

Yield Curve Movement: Risk/Reward versus Safe Haven Demand & Monetary Policy Expectations

UK leaves Europe, credit rating get's downgraded. High uncertainty, higher perceived risk - based on just risk/reward, would expect yields on UK debt to increase. They did the opposite. UK government ...
0
votes
0answers
26 views

Rblpapi-Getting different numbers than Bloomberg

I used the following code to pull day to day total returns (net dividends) from Bloomberg Terminal for a list of securities I have. When I compare my data using the GF function in Bloomberg, I am ...
1
vote
1answer
31 views

Why are the greeks for the underlying stock 0 with the exception of delta?

In my textbook that I am self-studying from it is given that (assuming the Black-Scholes framework): $\Delta_{stock} = \partial S / \partial S = 1$ All other Greeks for the underlying stock = 0 I ...
0
votes
2answers
43 views

Do yield curves only show market expectations, or is there more to them?

I am hoping to understand 'Brexit' impact on UK yield curves. Specifically, government liability yield curves (so yields based on UK government bonds - Gilts): The Background On 24th of June - the ...
0
votes
1answer
30 views

Why is the Risk Free Rate 1 over Contingent Claim Prices?

Reading Asset Pricing by John Cochrane (2005), in his second chapter he defines the risk free rate as: Rf = 1 / sum [pc(s)] Where pc(s) are state contingent claims, where s is the state of nature ...
1
vote
2answers
119 views

A paradox about the American Put option price

Suppose a put option on a stock $S(t)$ following a Geometric Brownian motion is given, with strike $K$ and maturity $T$. Let us denote its price at time $t$ by $p(t,S(t))$. Now, by no-arbitrage ...
0
votes
0answers
26 views

Estimating VaR (Value At Risk) with only 3 days of data

I've been given daily stock prices on Day 1, 2 and 3 for 10 stocks (hence 30 data numbers in total) and asked to approximately the 1-day 95% VaR (Value at Risk) on Day 3. I'm not allowed to use any ...
0
votes
0answers
34 views

Advice for Self-Study(application in financial engineering) [on hold]

I am currently studying statistics and i have such background: 1)Single and multivariable calculus(Stewart Calculus book) 2)Linear algebra(Strang's textbook) 3)Theory of probability(Ross book) 4)...
4
votes
1answer
106 views

How are Quandl monthly S&P500 earnings estimates derived?

Can someone explain how the monthly earnings estimates are derived for S&P500? Quandl sources multpl.com, who state: ...
2
votes
3answers
1k views

What does “convergence” in Monte Carlo simulation mean?

I have read about convergence in terms of MC simulation for derivative pricing, but I am not clear on what it exactly means. Let us suppose I price an option 100,000 paths twice and both result in the ...
0
votes
1answer
16 views

Finding optimal drift, importance sampling, least square monte carlo

I am working with Importance sampling for Least Squared monte carlo and have now problems understanding the implementation of the Robbins-Monro algorithm for finding the optimal drift for finding ...
1
vote
1answer
51 views

Writing an Options Strategy Backtester

I've been doing some digging, and this question has been asked many times in various forms over the years - Backtesting Options Strategies in R Are there any good tools for backtesting options ...
4
votes
2answers
85 views

Realized “efficient” frontier. Is this reasonable?

I have performed some out-of-sample analysis of mean-variance optimization with monthly rebalancing. Studying the "realized efficient frontier", I am worried that something is wrong. Since the ...
6
votes
2answers
458 views

Cross Bid and Ask prices for Forex trading

I am using ITCH protocol to get the Market Data information for Forex and trying to implement LOB on it and what i have noticed is that Bid and Ask prices are crossing very often. Should that be ...
5
votes
5answers
248 views

Why was NASDAQ(or other index) not fluctuating in 70s and 80s?

Today I have a search of historical NASDAQ back to 70s and noticed the index was slightly increasing in 70s-early 90s and rising up and down in recent decade of years. Why would that happen? The only ...
3
votes
2answers
91 views

GARCH variance vs standard deviation for volatility

in my series of questions related to GARCH and volatility I finally think I've got a decent grasp on it. You guys have been great help clearing up my questions for me. My next question is just a ...
0
votes
0answers
21 views

Binomial Algorithm proof by induction in bjork

I'm trying to proof proposition 2.24 from Bjork by induction, but I haven't been so lucky so far. Could anyone help me?
1
vote
0answers
33 views

Example Scalar Model Extended Kalman Filter

I have a simple question. I think not a question is, is a request. This month I have been studying how to understand and implement the Kalman filter algorithm for simple models such as the local level....
1
vote
1answer
16 views

How does this statement about the price of a prepaid forward on a stock follow?

I am self-studying for an actuarial exam on financial economics. This statement in the following problem/solution seems to imply that the prepaid forward price on a stock is the same as the prepaid ...
4
votes
3answers
334 views

Where can I get equivalent of 3 months libor or swap historical data?

Please note: I have already checked your standard "Historical data sources" link, but it does not have the data I need: I am looking for 5 years of libor/swap data for major currencies. Daily, or ...
4
votes
1answer
107 views

GARCH volatility modeling, squared returns, and convergence

After reading some more of Volatility Trading, I decided to try to make a simple volatility model using daily log returns of an ETF I follow. It turns out "simple" is sort of relative. Unfortunately, ...
3
votes
1answer
75 views

rugarch: GARCH external regressors

I'm currently playing around with the great rugarch package in R. However, I tried to test the external regressor functionality. I implemented a GARCH(1,1) process and compared it with a GARCH(0,1) ...
-2
votes
0answers
23 views

Matlab interest rates calibration script [on hold]

I've got a matlab script from a Matlab webinar about calibration of the G2++ model. This should give the parameters of the G2++ model based on historical yield curves (I know you can use swaption vols ...
12
votes
1answer
682 views

Models crumbling down due to negative (nominal) interest rates

Given that the negative interest rates on a lot of sovereign bonds with maturity under 10 years are trading in the negative (nominal) interest rate territory (recently also the short term EURIBOR has ...
8
votes
2answers
185 views

Stochastic Calculus Rescale Exercise

I have the following system of SDE's $ dA_t = \kappa_A(\bar{A}-A_t)dt + \sigma_A \sqrt{B_t}dW^A_t \\ dB_t = \kappa_B(\bar{B} - B_t)dt + \sigma_B \sqrt{B_t}dW^B_t $ If $\sigma_B > \sigma_A$ I ...
1
vote
1answer
74 views

How to measure the real interest rate using the consumer price index

I am examining how investor sentiment affects the probability of stock market crises. I am using methodology similar to this paper https://ideas.repec.org/p/dij/wpfarg/1110304.html. One of the ...
6
votes
1answer
940 views

How to calculate the JdK RS-Ratio

Anyone have a clue how to calculate the JdK RS-Ratio? Let's say I want to compare the Relative strength for these: EWA iShares MSCI Australia Index Fund EWC iShares MSCI Canada Index Fund EWD ...
1
vote
1answer
116 views

Monetary Policy and the Yield Curve PART TWO

The Fed has a number of tools/targets with which they manage monetary policy. I'm looking to refine a concise summary of them and looking for guidance/correction/validation. Think I understand these ...
0
votes
1answer
44 views

Special term for 'intersection' of option price

Suppose, I have written two ordered lists: $S_{call}= (\textbf{8000, 8050, 8100}, 8150, 8200, 8250)$ and $S_{put} = (7850, 7900, 7950, \textbf{8000, 8050, 8100})$. Entities are correspond to strike ...
1
vote
1answer
35 views

What is the difference between OIS Swap vs Basis Swap?

What is the use of OIS Swap Curve vs. Basis Swap Curve?
1
vote
1answer
23 views

Explain Four Basic Axioms of Maximising Expected Utility

I begin learn PRM , Someone help me understand Four Basic Axioms of Maximising Expected Utility most intuitive way .Thank you very much
1
vote
2answers
21 views

How can you find change in working capital and capital expenditures without a balance sheet?

I'm working with the following information trying to work through a valuation exercise and I'm absolutely stuck. How can I find ∆WC and CAPX with this information?
2
votes
2answers
37 views

How to take care of newly auctioned yield/price in fixed income data

This is a financial data cleaning question. I have raw price and yield data for US cash treasury across the curve. In the time-series there are jumps on the day after the treasury auction results come ...
2
votes
1answer
42 views

Time series of European sovereign credit ratings by the Big Three?

I would need time series, from 2000 to 2015 (if possible) of sovereign credit ratings by Moody's, S&P and Fitch. Could you suggest me a source or provide me such a dataset? Thank you very much!
1
vote
1answer
31 views

DAX - company's weights

How often are company's weights being changed on DAX? Where can I find historical data of DAX weights?
4
votes
2answers
67 views

What is the effect of mean-reversion on an upper barrier knock-out call option?

Consider a mean-reverting normal model for an underlying $dX^{(1)}_t=-\kappa X^{(1)}_tdt+\sigma^{(1)} dW^{(1)}_t$, for fixed time-independent constants, $\kappa$ (mean-reversion) and $\sigma^{(1)}$ (...
0
votes
1answer
70 views

Stress Testing for VaR

I am trying to perform stress testing for VaR and have taken into consideration two methods:- 1. Sensitivity analysis 2. Historical scenario analysis. According to the Derivatives Policy group we ...

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