8
votes
1answer
294 views
Where can I find data on the interbank lending market?
Where can I find disaggregated interbank lending data (i.e. bank A lends to bank B x money at y rate)? I could only find data on interest rates.
I would accept LIBOR market data as well as any ...
-3
votes
2answers
155 views
Re-resolving OHCLV stock Data [closed]
Whats the most efficient way to re-resolve stock data? I have 10m data in a database that I am using for 3-5day trading purposes (e.g a 5 day chart). Now for a 1 month chart, I am multiplying 10 by 4 ...
5
votes
1answer
511 views
How to simulate correlated assets for illustrating portfolio diversification?
I have seen multiple instances where people try to explain the diversification effects of having assets with a certain level of correlation, especially in the "most diversified portfolio" literature. ...
8
votes
1answer
273 views
What drives changes in implied volatility on ETFs/ETNs?
I thought implied volatility, as well as the VIX, primarily increase due to increases in the underlying asset's volatility, as well as the options themselves being bid up because more people were ...
6
votes
1answer
461 views
What is the best way to forecast prepayment rate in an emerging market mortgage loan portfolio?
I constructed a model to forecast the prepayment rates for a mortgage loan portfolio (of mortgages in an emerging market) using probit regression on factors such as loan-to-value, PTI, time from ...
6
votes
2answers
1k views
What causes the call and put volatility surface to differ?
I currently have a local volatility model that uses the standard Black Scholes assumptions.
When calculating the volatility surface, what causes the difference between the call volatility surface, ...
-6
votes
3answers
469 views
True or False? An option's price will always be greater than or equal to its intrinsic value
Since if the option's price is lower than its intrinsic value (eg. strike price - current stock price for puts), then an arbitrage opportunity arises from buying the option at bargain and then ...
9
votes
3answers
443 views
Maximization of CARA utility function: unique solution with an unbounded parameter?
An investor at time $t_0$ can invest his wealth $w_0$ in a risky asset $x$ for an amount $a$ and the remain part in the riskless asset $w_0-a$.
At the end of the period $t_1$, the investor will ...
-1
votes
2answers
601 views
A gentle introduction to cointegration [duplicate]
Possible Duplicate:
What is the intuition behind cointegration?
Although having a postgrad degree in mathematics, I haven't used any maths 'in anger' for quite a few years now, so I am ...
5
votes
5answers
1k views
What are the advantages of switching platforms/languages between strategy development and implementation?
I am interested in coding a medium frequency (trading over minutes to hours, holding for days to weeks) quantitative trading strategy and trading it with Interactive Brokers.
I have seen many people ...
1
vote
1answer
673 views
Home/hobbyist quant trading - possible to profitable or just an intellectual hobby? [closed]
I've been researching algorithmic (non discretionary) trading at the several-day to month timescale, i.e. not HFT. I am not interested in voodoo i.e. no technical analysis, I am looking for solid ...
2
votes
1answer
237 views
Is there a measure for the 'degree' of cointegration
Is there a standard (or maybe even intuitive?) way of ranking pairs of cointegrated time series so that one could make statements like the following:
...
7
votes
3answers
884 views
How to obtain true probabilities from Black-Scholes?
How to obtain true probabilities from Black-Scholes option pricing equation?
Suppose, that we know risk adjusted discount rate for the underlying asset (the drift term in the physical measure) and ...
1
vote
1answer
133 views
accumulation/distribution and options to create excessive position to hit the tape with later
I am curious about possibilities and theory here. Basically a "problem" with trying to get large positions is that it would move the market in the direction that you are loading up on, therefore ...
5
votes
0answers
320 views
What is the correct procedure to choose the lag when preforming Johansen cointegration test?
When preforming Johansen cointegration test for 2 time series (the simple case) you need to decide the lag you want to use. Doing the test for different lag levels returns different results: for some ...
3
votes
4answers
489 views
Do markets typically fall fast, and rise slowly
I'm wondering if there is some measurement or name to this notion, i.e.:
Markets typically fall fast, but rise slowly.
It seems like this is the case -- get some bad news out of Europe on the debt ...
0
votes
1answer
476 views
what is the best way to calculate the probability of an equity option ending in the money?
Given historical implied volatility and all other know variables (stock price, option strike price, option expiration date, dividend rate, interest rate) what is the best way to calculate the ...
15
votes
4answers
1k views
10
votes
2answers
835 views
Value-at-Risk of the sum of two dependent lognormal random variables
Hy I posted this question first at mathflow.net they suggested me this page, which I was not aware of.
Question:
Let $(X_1,X_2)$ be a multivariate normal random vector ($X_1$ and $X_2$ need not be ...
6
votes
1answer
129 views
Should we apply practical constraints on the distribution of monte carlo paths?
to limit interest rate paths to a 'reasonable' range (if we could define reasonable). Now we calibrate log-normal skew and mean reversion monthly to robust basket of atm swaptions and in and out ...
3
votes
3answers
6k views
How to calculate expected return based on historical data for Mean Variance Analysis
I've recently started reading some books on asset allocation and portfolio theory but I don't work in the field and don't have much knowledge yet.
So I've been reading up on mean-variance analysis ...
5
votes
1answer
241 views
Demonstration of Ito's correction term/lemma in binomial tree
I am preparing an undergraduate QuantFinance lecture. I want to demonstrate the ideas of Ito's correction term and Ito's lemma in the most accessible manner.
My idea is to take the "working horse" of ...
11
votes
1answer
663 views
Cleansing covariance matrices via Random matrix theory
I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
5
votes
1answer
166 views
RMT (Random Matrix Theory) issue with callibrating MP distribution -
I am seeing an issue when callibrating an MP distribution. Assume a log return series for the SP500 with the following dimensions
dim(xts.sp500.ret.stocksonly)
==> [1] 1133 478
...
1
vote
0answers
210 views
9
votes
1answer
522 views
How to use macroeconomic indicators for long/short trading strategies?
I am trying to understand how to use macroeconomic data in my trading. I understand that using such data could be used to gauge an overall view of the market and how it's doing as a whole. I have been ...
3
votes
1answer
351 views
How does “time segmented volume” differ from on-balance volume?
Worden Brothers Inc. advertise a proprietary indicator called Time Segmented Volume.
This gizmo seems closely to resemble On Balance Volume.
Is there any reason to think that TSV might yield a more ...
5
votes
1answer
303 views
Can duration gap analysis be applied to mortgages?
Can a mortgage loan be treated like a bond and its duration calculated using the bond duration formula? More precisely, can I calculate the loan portfolio duration for duration gap analysis, with ...
6
votes
2answers
676 views
Is Duration really the slope of the Price-Yield curve?
When looking at the Price-vs-Yield graph for a fixed rate instrument, we are often told that the duration is the slope of that curve. But is that really right?
Duration is (change in price) divided ...
1
vote
2answers
456 views
Can we replicate a call option without borrowing and make it cheaper in this way?
I learned how to price a European call option using this video lecture. The considered case is very simple. The call option gives the right to buy 100 Euros for 100 Dollars in one month from now. The ...
8
votes
1answer
330 views
Any research paper on stop loss?
Has there been any rigorous study on stop loss ? When to apply it?
Has it been shown to work through proper statistical backtests?
I am interested in Equities, preferably European stocks.
2
votes
1answer
151 views
Do bond credit ratings suffer from “ratings inflation”?
A friend of mine who studies game theory suggested that credit ratings from the bond ratings agencies, such as Moody's, S&P, and Fitch, may suffer from a sort of "ratings inflation" similar to the ...
9
votes
3answers
898 views
Why do expected return models and risk models use different factors?
This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler.
I always approached expected return and risk modeling as separate
...
7
votes
2answers
655 views
Why doesn't Black-Scholes work in discrete time?
I have a question considering Financial markets in discrete Time:
One of the main theorems in discrete time is:
In finite discrete Time with trading times t={1,...,T} the following are equivallent:
...
6
votes
2answers
598 views
Why is the SABR volatility model not good at pricing a constant maturity swap (CMS)?
I have heard that the SABR volatility model was not good at pricing a constant maturity swap (CMS). How is that?
11
votes
2answers
416 views
What benchmark/index to use for backtesting a portfolio of stock options?
What benchmark should I use for backtesting a model for when I should buy an option of a particular stock? For equities, one could say their portfolio outperformed the S&P 500. I would like to ...
9
votes
1answer
431 views
One dimensional analog of cleansing a correlation matrix via random matrix theory
The general idea of cleansing a correlation matrix via random matrix theory is to compare its eigenvalues to that of a random one to see which parts of it are beyond normal randomness. These are then ...
7
votes
1answer
378 views
What is the optimal strategy when there is an equal chance for gain or loss but the size of the potential gain is larger?
I'm investigating a situation where the chance for gain or loss is the same, but the amount gained is greater than the amount that is lost. For example, the gain would be about 30% of the trade ...
12
votes
2answers
417 views
Can you fully hedge an option in the presence of counterparty risk?
The derivation of the Black-Scholes model assumes no counterparty risk. Does the presence of counterparty risk invalidate the argument behind the model?
EDIT: The question is about options in ...
2
votes
0answers
156 views
Can a higher P/E ratio be beneficial under certain circumstances? [closed]
I am new to investing. I understand that the P/E ratio along with other data can be used to determine whether a stock may or may not be undervalued.
Are there situations where a HIGH P/E is actually ...
9
votes
2answers
1k views
Why a self-financing replicating portfolio should always exist?
According to my understanding the derivation of the Black-Scholes PDE is based on the assumption that the price of the option should change in time in such a way that it should be possible to ...
6
votes
4answers
1k views
How does an option's time value depend on moneyness?
How does an option's time value (also known as extrinsic or instrumental value) depend on how far it is in the money or out of the money? In other words, how does the time value change as the ...
8
votes
2answers
996 views
How to vet an intraday strategy
I am working on an intraday strategy using 5/10 minute bars. I am getting a decent return and sharpe on the strategy. But on close examination I see that I am making about 1 cent per trade (I haven't ...
7
votes
2answers
532 views
What quantitative strategies were successful through the 2008 crisis?
Obviously, strategies like "short everything" did well during this period, but getting the future right is one thing and having a robust strategy is another.
In particular, many quantitative ...
9
votes
2answers
451 views
What is the relationship between risk aversion and preference for skewness and kurtosis in portfolio optimization?
Is there any relationship between the risk aversion coefficient in an individual's utility function (commonly used in portfolio optimization) and the preference for higher moments such as skewness and ...
6
votes
3answers
346 views
How to account for jumps in intraday data when calculating beta?
I am calculating betas on intraday trade data at 15-minute intervals. For simplicity sake, let's assume I am modeling
\begin{equation}
Y = \beta * X + c
\end{equation}
where $Y$ is the return of XLF ...
9
votes
6answers
824 views
How to generate a random price series with a specified range and correlation with an actual price?
I want to generate a mock price series. I want it to be within a certain range and have a defined correlation with the original price series.
If I choose, say, oil, I want as many time series which ...
5
votes
1answer
131 views
Are there quantitative models which can guide one's choice of target risk?
Note: This question was written for the weekly topic challenge.
Many asset allocation funds presume the investor knows his target risk level, typically on some spectrum from conservative (mostly G7 ...
7
votes
3answers
280 views
How to improve the consistency of explained variance statistics in a linear equity model?
I have an intraday equity returns linear model that, overall, shows good values in terms of $R^2$, p-value and other explained variance statistics. Around 70% of the stocks show consistent R-squared ...
3
votes
2answers
196 views
Which indices to use for an equity vs. fixed-income portfolio simulation?
I want to backtest several basic optimization methods (e.g. MVO, "most-diversified portfolio"), and I want to do this on a basket of different asset indexes. To start with, I want to simulate a 60/40 ...
