5
votes
0answers
187 views

Integral-differential equation for forward rates

I am struggling in this question: Let $P(t,T)$ denote the price of a zero-coupon bond (with marturity at time $T$) at time $t \in [0,T]$. As usual, at time $t$ for maturity $T$, the forward rate is ...
5
votes
0answers
72 views

Estimating Number of “Day Trades” from Total Volume of Commodity Futures Contract

Looking at futures data I am trying to calculate/estimate the number of "day trades", i.e. positions that were initiated and closed during the same day, as distinct from those positions that were ...
5
votes
0answers
626 views

A model to stochastic hazard rate and CDS spread term structure

I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at $s$, maturity $T$ and recovery function $...
5
votes
0answers
200 views

Calculating volatility of inhomogeneous time series

I am reading an article by Zumbach and Müller whose name is Operators on Inhomogeneous Time Series. This is interesting in general, but my main goal is to learn a good and efficient method to ...
5
votes
0answers
2k views

Calculate interest rate swap curve from Eurodollar futures price

So I was reading Robert McDonald's "Derivatives Markets" and it says Eurodollar futures price can be used to obtain a strip of forward interest rates. We can then use this to obtain the implied ...
5
votes
0answers
55 views

What type of interpolation should be used in key rate perturbation models?

When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and ...
5
votes
0answers
265 views

Algorithmic Trading Model Calculation and Stale Data

I'd like ask everyone a more concurrency programming but definitely quant-finance related question. How do you deal with staleness of data in market hours as quote ticks are streaming and your model ...
5
votes
0answers
361 views

Fitting Student t-distributions to log-returns

It seems that some tail-risk centric groups are bent on using Paretian and t-distributions to account for tail risk when fitting log-returns. It has been observed, however, that with and without ...
5
votes
0answers
450 views

Shrinkage Estimator for Newey-West Covariance Matrix

I like to apply the Newey-West covariance estimator for portfolio optmization which is given by $$ \Sigma = \Sigma(0) + \frac12 \left (\Sigma(1) + \Sigma(1)^T \right), $$ where $\Sigma(i)$ is the lag ...
5
votes
0answers
431 views

compute time from FX forward, how use DEPO rates?

assume I have following delta-term vol data from broker: ...
5
votes
0answers
304 views

Analyzing the angle between vector of weights and vector of returns in mean-variance optimization

I am using the paper "A Sharper Angle on Optimization" by Golts and Jones (2009) as a basis for my (minor) masters thesis in mathematical finance. The paper focuses on the mean-variance analysis of ...
5
votes
0answers
769 views

Asymmetric Volatility Modeling (Interpretation)

I am currently writing a paper on asymmetric volatility modeling of brent, gold, silver, wheat, soybean and corn from 1986-2012 and divided them into 4 sub-sample periods (i.e. 1986-1991, 1991-1997, ...
5
votes
0answers
170 views

Arbitrage free price of a derivative when the price is collected over the lifetime of the derivative

Let $X_t$ be an american style financial derivative with random exercise time $T$ where $t$ and $T$ belongs to some finite set $A$. Buying this derivative requires the buyer to pay $p_t$ up to time $T$...
5
votes
0answers
518 views

Is there a standard method of scaling alpha forecasts to t-cost estimates?

Given a set of monthly alpha forecasts (i.e. standardized z-scores from a multi-factor return model) and a non-linear market impact model (or more specifically, its piecewise-linear approximation), is ...
5
votes
0answers
180 views

How companies choose earnings release dates, & effect on Implied Volatility

A company's earnings release date significantly affects weekly or monthly option prices/implied volatility. For companies that typically release earnings on the cusp of monthly options expiration, ...
5
votes
0answers
181 views

Use of Local Times in Option Pricing

I know two applications of local time in option pricing theory. First, it allows a derivation of Dupire's formula on local volatility in a neat way (i.e. without resorting to differential operator ...
4
votes
0answers
48 views

Block bootstrap to synthesize asset prices

I have a few basic questions on block bootstrapping on a financial time series ('TS'). Assuming my trade universe consists of 10 stocks, I would like to create a set of synthetic prices for all 10 ...
4
votes
0answers
23 views

Polynomial interpolation of corrected lognormal distribution

Can anyone provide a formula for a polynomial interpolation of the corrected lognormal distribution used to model returns traditionally resulting from the wrong Brownian motion generated model? ...
4
votes
0answers
97 views

How to trade the Ornstein-Uhlenbeck process?

My question comes from this paper, which is a short version of Avellaneda's paper The picture bellow provides a summary of the equations. Do I understand correctly that in order to trade OU process ...
4
votes
0answers
59 views

How do I calculate the present value of a credit default swap?

I am paid 20 million every time a bond drops to a new low over a 120 month period. I need to know how to find the present value of such an arrangement if there is a continuously compound interest of 5 ...
4
votes
0answers
37 views

delta hedging with stochastic volatility

In my thesis I want to work with delta hedging with stochastic volatility using Black-Scholes model. How will you suggest I implement numerical solutions using data from the real world? Beside Monte ...
4
votes
0answers
40 views

Regularity requirement for convergence of Euler scheme for stochastic integral?

Let $S_t$ be follow Black Scholes, then I am interesting in simulating the process $\int ^t _0 e^{-rt}1_{\{S_t\leq K\}}dS_t$ which is like a naive hedge of a European put, which does not work in ...
4
votes
0answers
51 views

Where can I get two to four years worth of historic data news for companies included in DJ and S&P?

Where can I get two to four years worth of historic data news for companies included in DJ and S&P? I mean not just prices historic data but also news. Preferably for free and in CSV or any ...
4
votes
0answers
71 views

Greeks of a Basket Option

I want to estimate delta, vega and gamma for a basket option. This option is a European Call option. The underlying is $S=\omega_1 S_1 +\omega_2 S_2$ Where: $S1$ = stock price of asset 1 $S2$ = ...
4
votes
0answers
60 views

Are there academic papers on the 'term structure' of adverse selection for futures and options?

By term structure I mean a non-stationarity in the pattern of intraday adverse selection as a given instruments approaches its expiry. Note that I am interested in the adverse selection on the ...
4
votes
0answers
295 views

How to forecast high-frequency data?

Introduction: I have seen a plenty of articles/books regarding volatility forecasting applied to high frequency data, but none of them were dedicated to forecasting the actual prices (for example bid/...
4
votes
0answers
122 views

How would it be possible to use Dynamic Programming to search a space of investment strategies to find an optimum?

As my question states, the problem I am having is finding a sensible way to search a large space. Any help or insight that could be provided would be hugely appreciated. Currently I am trying to ...
4
votes
0answers
50 views

How to price lookback american option when its payment is distributed during its life

I would like to price a floating strike american lookback with a particular feature: I don't want to charge upfront the client, rather I would like to insert a "running fee", some sort of a dividend. ...
4
votes
0answers
391 views

How do I artificially generate intraday ticks data from a given input (Open,High,Low,Close,Volume) using Brownian Bridge method?

How do I artificially generate intraday ticks data from a given input (Open,High,Low,Close,Volume) using Brownian Bridge method? https://en.wikipedia.org/wiki/Brownian_bridge P.S: Brownian Bridge ...
4
votes
0answers
311 views

Mid-Point calculation with execution probability

Referring Cao, Hansch, and Wang (2004) "The Informational Content of an Open Limit Order Book" $$ \mbox{WP}^{n_1 - n_2} = \frac{\sum_{j=n_1}^{n_2} (Q_j^d P_j^d + Q_j^s P_j^s)}{(Q_j^d + Q_j^s)} $$ ...
4
votes
0answers
158 views

How to de-seasonalize natural gas term structure data?

I need to de-seasonalize Nat Gas futures data for a project and am hoping to get good suggestions. As we all know natural gas futures are priced higher for the winter months and to analyze/model the ...
4
votes
0answers
70 views

Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
4
votes
0answers
156 views

Finding the dynamics of a dividend paying asset under arbitrary numeraire

Assuming I have a dividend paying asset $S$ with dividend process $D$. Now I would like to use the bank account process $B$ as numeraire and determine the dynamics of $S$ under the the corresponding ...
4
votes
0answers
493 views

Explanation or implementation of Ledoit-Wolf estimator (without math packages)

I have calculated weights of selected assets in a market-neutral portfolio (presumably with min variance) using PCA and simple data covariance matrix. The question is : It is obvious that Cov Matrix ...
4
votes
0answers
100 views

Dividend Index Futures

My question is dealing with the proportionality between Dividend Index Futures prices and Index prices. Indeed, we in the past we used to do a simple regression between these variables and use the ...
4
votes
0answers
311 views

pairs trading detrend the spread

I have calculated a hedge ratio that generates a mean reverting spread (stationary, without trends) 60-70% of the time. But the remaining 30% of the time, it seems like there is a trend in the spread. ...
4
votes
0answers
98 views

LSM American Option pricing with dividends

Under the Longstaff-Schwartz LSM method for an American call, how should I account for a continuous dividend paying stock? I assume that it'll needs to be accounted for when simulating the underlying ...
4
votes
0answers
418 views

Is this methodology to calculate Alpha using multi-factor regression model correct?

I am trying to find out Historical Alphas of a bunch of fund returns ${F_i}$ by Using Regression Model$(stepwise)$ with regressors as its underlying exposure-returns(risk-free rate subtracted) i.e. $$...
4
votes
0answers
1k views

FIGARCH estimation in R

I am trying to estimate a FIGARCH(1,1) model in R for Value-at-Risk purposes. As I understand it, the rugarch package does not support FIGARCH or FIEGARCH. To that end, I used the garchOxFit function (...
4
votes
0answers
91 views

Risk neutral measure in exponential levy model

Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ...
4
votes
0answers
170 views

How to price an option with two volatilities?

Imagine you have two volatilities, the second which is "activated" when the stock crosses a barrier called $p_b$. The present price is $p_1$. ($p_b>p_1$). This can be used to price options after a ...
4
votes
0answers
111 views

Simple way to get the crossing probabilities of a moving barrier

Hello Quant Finance StackExchange, Is there a simple way to find the crossing probabilities of a moving barrier, namely a barrier written in the form $U(t)=\alpha_1t^2 + \beta_1t + \gamma_1$ and $L(t)...
4
votes
0answers
169 views

ERP and FF 3-factor model

In a more conservative estimate than a simple historical average, Fama & French estimate (US) equity risk premium at 3-4% (e.g., Equity Risk Premium, JF, 2002). This suggests that in an APT-like ...
4
votes
0answers
99 views

Optimal mortgage rate strategy

When buying a mortgage, you can choose to "lock in" a rate at any point within 60 days of your closing date. Once locked in, you can't revert. This makes it a secretary problem - in the traditional ...
4
votes
0answers
162 views

Is it random walk?

I would like to ask a question about random walk. Campbell, Lo & Mackinlay defined the random walk, in the following way (RW3): $$ cov[f(r_{t}),g(r_{t+k})]=0,\qquad k\neq0 $$ for all $f(\cdot)$ ...
4
votes
0answers
344 views

Rate Distortion Minimization in a Python Clustering Algorithm

I'm attempting to solve for $\hat{k}$ clusters, such that the rate distortion is minimized, as described here, however, the answers that I am getting from my algorithm are not following the "Jump" ...
4
votes
0answers
305 views

Quant/Stat Factor Performance Website/Distribution?

Does anyone know of a decent quant/stat factor website, distribution(public or private) or publication that tracks performance of "many" of traditional quant/stat factors? By that I mean would show ...
4
votes
0answers
544 views

How to determine ratios for mean-reverting basket

Suppose I have a basket of 3 securities A, B, and C. I believe that the basket is cointegrated and I want to create a mean-reverting trade. I fit the model: $\log(A)=\beta_b*\log(B)+\beta_c*\log(C)+\...
4
votes
0answers
154 views

Industry factors without GICS

I'm working through the Quantitative Equity Portfolio Management book by Chincarini and Kim. I'd like to build a basic industry-based fundamental factor model. As this is a pet project for ...
4
votes
0answers
218 views

Estimation of ranks of log-returns via copula

I have successfully chosen and estimate a copula for the ranks of the log-returns of my actions. My question is, since I have worked with the ranks instead of directly the log-returns (in order to be ...

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