0
votes
0answers
11 views

Compounded Quarterly [on hold]

Money borrowed today is to be paid in 6 equal payments at the end of 6 quarters. If the interest is 12% Compounded Quarterly. How much was initially borrowed if quarterly payment is $2000 Answer is ...
4
votes
0answers
59 views
+100

Model a floating rate BBB yield curve

Background: We want to design a compensated prepayment liability index to define an amount a bond buyer would need to receive in a redemption prior to the nominal maturity of a bond. Ideally we'd ...
1
vote
1answer
107 views

Forward Curves and Par Yield Curves

I'm recently reading a research paper on the yield curve by Salomon brothers and in it it states that when the forward curve is above the par yield curve, it is seen as cheaper. If for example, the ...
1
vote
1answer
38 views

Test .mql4 (meta trader 4 editor) when the fx market offline

I am coding some simple .mql4 program, you know, the fx market is offline on weekend, and the market will be not shown in Meta trader 4 platform. I wanna test my program in meta trader 4 on weekend. ...
7
votes
3answers
172 views

Option Pricing Model Calibration In Practice

I'm curious how an option pricing model like the Heston model is calibrated in practice. Here's how I imagine it happens: Let's say I have access to the most recent option prices on a given stock ...
3
votes
1answer
138 views

How to estimate CVA by valuing a CDS of the counterparty?

I'm trying to estimate CVA of one of my derivatives by valuing a credit default swap (CDS) of my counterparty. However, I don't know how to set up the CDS deal (notional amount, maturity, etc.). ...
1
vote
1answer
63 views

Completeness and Hedging Question

A question in some private notes I'm struggling to work through (exam. prep.). (iii) is where I hit a wall with my understanding & I'm lost thereafter. Any help/clarification gratefully received. ...
2
votes
2answers
76 views

How to select optimal look back period for statistical arbitrage?

Is it possible to estimate the optimal look back period for OLS from which we test if residuals are stationary? Almost all papers that I read use random look back periods of 100 days, 252 days, 500 ...
5
votes
0answers
39 views

Does price of american (put) option exhibit smooth pasting in time direction under B-S model?

Let us consider the BS model and let $f(s,t)$ denote the price of an American put option with $t$ to expiry, then it is known the solution of the optimal stopping (when it is risk neutral) related to ...
3
votes
1answer
266 views

VaR mapping - Forward Foreign Currency Contract

I have a question about VaR mapping for FX forwards. Please bear with me while I outline the problem. Philippe Jorion's book discusses VaR mapping; a means to break down complex instruments into ...
5
votes
1answer
79 views

Boundary conditions of PDE from SV model with stochastic interest rate

The PDE for the American put option price $P(S,\sigma ,r,t)$ is \begin{align*} 0 =& P_t+P_SS(r-\delta)+P_\sigma a(\sigma)+P_r\alpha (r,t) \\ +& \frac{1}{2}P_{SS}S^2\sigma ^2 + ...
1
vote
0answers
19 views

How should I use central banks rates in order to compute 2-day forward exchange rate on EURUSD

Good morning, I would like to compute a 2-day forward exchange rate on EURUSD. For that, I have historical data on EURUSD spot price, and I know that theoretically, when maturity is T we have : ...
5
votes
1answer
171 views

What are the main market efficiency measures in the stock market?

I'm going to test for the effect of the change in market efficiency on the stock market portfolio, and, I want to know what are the main measures known in the academic literature in order to compare ...
4
votes
0answers
92 views

Parametrizing the Radon Nikodym

The following is an excerpt from the dialogue in the book "Counterparty Risk and Funding - A Tale of Two Puzzles", regarding the statistics such as the volatility and correlation estimation under the ...
6
votes
0answers
144 views

Here is an approach for measuring Data Snooping; is it new?

I came up with an approach for measuring data snooping, or overfitting. My question is whether this approach was published and expanded-on already, or is it new? My approach relies on the observation ...
11
votes
2answers
778 views

Applicability of PCA to get historical volatilities to calibrate interest rates trees

My question in short is as follows: can I take main principal component of historical covariance matrix and use it as historical volatilities when fitting a binomial tree? Here's more detailed ...
1
vote
1answer
65 views

On a source for a mean-variance portfolio optimization result

In the context of a mean_variance framework consider an optimizing investor who chooses at time $T$ portfolio weights $w$ so as to maximize the quadratic objective function: $$U(w) = E[R_p] - ...
1
vote
1answer
31 views

Lease Accounting / FX Embedded Derivatives

I have a lease agreement where the functional currency is USD, domestic currency is UAH. Lease agreement is written in EUR (rent rate) and payments are to be done in UAH in the amount of rent rate ...
1
vote
3answers
196 views

Finding Expression for Optimal Markowitz Weights

So there are two assets with return rates $r_1$ and $r_2$ which have identical variances and a correlation coefficient $p$. The risk free rate is $r_f$. I need to find an expression for the optimal ...
2
votes
1answer
41 views

Estimate market risk premium?

There are uncountable many factor models to estimate stock returns, such as CAPM, FAMA-FRENCH etc. Which models can estimate the market (index) return? I found only three models: Cay, Dividends and ...
2
votes
1answer
29 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 ...
1
vote
0answers
22 views

Disaggregating stock performance and dividend yield

I modeled the performance of several portfolios with adjusted close data and would now like to understand how much of it is driven by changes in stock price and dividend payouts. I have all the data ...
2
votes
1answer
105 views

Arbitrage question

Consider a hypothetical Payment in Kind (PIK) bond of XYZ Corporation. The bond has 2 years to maturity, a face value of $1000, and has an annual coupon rate of 10%. Coupons are paid annually. XYZ ...
2
votes
2answers
88 views

The Distribution of Future Stock Price

In Hull, we are presented that $$\frac{\Delta S}{S_{0}}=\mu \Delta t+\sigma\sqrt{\Delta t}\cdot \varepsilon.$$ Following some algebra, $$ \begin{align*} \frac{\Delta S}{S_{0}} &=\mu \Delta ...
17
votes
7answers
9k views

Python library for Portfolio Optimization

Does anyone know of a python library/source that is able to calculate the traditional mean-variance portfolio? To press my luck, any resources where the library/source also contains functions such as ...
2
votes
1answer
370 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 ...
0
votes
1answer
60 views

Local volatility parametrization using the spot

Is it possible to estimate the local volatility using the spot price S at time t instead of the strike price K and the expiry date T ? Any help would be appreciated.
2
votes
3answers
82 views

Unique risk neutral measure for Brownian Motion

For a standard geometric Brownian motion model of stock prices: $$ dS = a S dt + \sigma S dZ$$ we can transform the process to be under risk neutral measure: $$ dS = r S dt + \sigma S d \tilde{Z}$$ ...
3
votes
0answers
73 views

Bridgewater's Daily Observations

Bridgewater Associates send out Daily Observations to their clients, but I haven't found many traces of these publications online. The series started some 40 years ago by Ray Dalio, and there're just ...
3
votes
3answers
118 views

Arbitrage bounds for Black-Scholes

In some implied volatility code I came across, there is a check to ensure there is no violation of the arbitrage bounds based on the inputs to the method. For the call option, if $$P < 0.99 * ...
3
votes
2answers
69 views

Hedging portfolio and extraction PDE of SV model with stochastic interest rate

How can I extraction this PDE \begin{align*} 0 =& P_t+P_SS(r-\delta)+P_\sigma a(\sigma)+P_r\alpha (r,t) \\ +& \frac{1}{2}P_{SS}S^2\sigma ^2 + \frac{1}{2}P_{\sigma ...
7
votes
3answers
2k views

Papers about risk managment in algorithmic trading systems?

I am currently doing my research for my master thesis, which will clearly focus on the question of risk managment in algorithmic trading systems. I have done research about this topic and found some ...
2
votes
1answer
61 views

Options on Volatility Control Index

I have two question. Does an option on volatility control index exist? If I google it, it seems like there is such an option, but I can't find the option on any of exchanges. So this is my first ...
1
vote
1answer
77 views

Acquiring large sets of price series

Selling and delivering real-time data seems to be the focus of practically all large data vendors, but I am more interested in acquiring large sets of historical daily data covering, say, 5.000 ...
4
votes
2answers
143 views

Covariance between two stocks in a two-factor model

I am studying the Arbitrage Pricing Theory using Pairs Trading: Quantitative Methods and Analysis.In page 44 the author gives an example on how to calculate the covariance between two stocks. I will ...
2
votes
1answer
21 views

Availability of TotalView-ITCH data

I am looking for a cheap (< $500) NASDAQ TotalView-ITCH real-time streaming data feed. Are there any cheap and (relatively) good market vendors out there that offer this? It seems as if the ...
5
votes
1answer
111 views

Bayesian estimation of asset pricing models

I am interested in Bayesian methods in the context of financial economics and quantitative finance and have been looking for research which uses Bayesian parameter estimation on asset pricing models, ...
4
votes
4answers
267 views

Volatility skew and how to capture it?

We see in the market that a implied volatility surface is not flat. Based on this observation different models were developed to capture the structure, e.g. CEV / SABR. A measure often used for the ...
1
vote
0answers
27 views

ISM PMI data - sector trend through ranking and seasonal decomposition

I have monthly data for each of the 18 sectors in the ISM PMI. Each datapoint shows the trend of a sector: growing, contracting or neutral. It also tells the strength of that trend with a number: ...
2
votes
1answer
86 views

Why is my YTM incorrect? How does accrued interest play into Yield to Maturity?

I'm writing some software that includes a feature to calculate Yield to Maturity for a Bond. I'm using an HP 10bii Financial Calculator to double check the answers produced by my software. I'm running ...
1
vote
1answer
74 views

Jacobian transformation

I am trying to calculate pillar-wise sensitivity of a fixed coupon bond using par rates (given pillar-wise zero coupon sensitivities). I came across the formula pv01(par) = pv01(zero) * dz/dr, where ...
1
vote
0answers
131 views

Reference request about stochastic volatility model

I'm fiddling with estimation of stochastic volatility models and have build up a somewhat flexible framework using indirect inference. I would like to try and throw a lot of different continuous ...
18
votes
7answers
5k views

Training set of tick-by-tick data?

I'm looking to find a free source of tick by tick data (<1sec) for training purposes. It doesn't need to be longer than a day, and I don't care what instrument, or exchange, or time it is. I just ...
1
vote
2answers
98 views

Discounted Stock Price

I have the following Question : Prove that under the risk-neutral probability p the stock and the banjaccount have the same average rate of growth. In other words, if $ S_0 , S_N $ are the initial ...
1
vote
1answer
41 views

Arbitraging upward sloping yield curve

I read from various sources that yield curve is normally upward sloping. If that's the case, if we borrow short term and lend long term, won't we always make money on average? Let's say 1-year ...
2
votes
1answer
34 views

VaR calculation accuracy/comparison/effectiveness through different R packages

My question is what would be the better( in terms of estimation accuracy) method of VaR calculation among below two:, also any small code snippet will be great as a starting point for me. 1st method: ...
1
vote
1answer
41 views

Differences between editions of Security Analysis by Graham and Dodd?

Where can I find a comparison of the contents, a list of everything that changed or the differences among the different editions of the book Security Analysis by ...
-1
votes
0answers
36 views

Impact of The Volcker Rule on VaR [closed]

On January 18, 2011, the Financial Stability Oversight Council ("FSOC") approved and released to the public a study formalizing its findings and recommendations for implementing section 619 of the ...
-1
votes
0answers
27 views

Convert volatility of log returns into volatility of asset (bollinger bands)

I am using a model to estimate the volatility of the log-returns of an asset (standard stochastic volatility model for info) The main question is: How can I find back the windowed volatility of this ...
0
votes
1answer
121 views

negative probabilities in the bivariate tree heston model

I am trying to implement the bivariate tree approach for the Heston model by Beliavea & Nawalkha. I currently have the problem that given the specifications in their examples, I always obtain ...

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