All Questions

88 views

Ito integrals and copulas

Let $X_{t}$ and $Y_{t}$ be two brownian motions and let their joint distribution be given by $F$. So in regularly correlated BM's where $dX_{t}dY_{t}=\rho dt$, we have a bivariate normal distribution ...
194 views

SABR calibration: simple explanation and implementation

I would like to learn more about the SABR model and ho it is used in modeling smiles in equity, FX and rates markets. How would you explain the process and its implementation in simple steps? Any web ...
37 views

Pricing inflation lags

I've been looking into a short piece of maths I found on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding was correct or if the maths isn't quite ...
55 views

Why interest rate future does not support fed policy on reducing assets buying?

Using the 3-mon eurodollar interest rate futures, I construct a yield curve each year for 2015-2021 using sampling date from the end of the month. If you graphed this out, you would see that the ...
88 views

How is USGG10Y (or any tenor) constructed?

I was wondering how the yield curve for US treasuries are constructed (ex. USGG10Y, USGG5Y, etc.). How to compute for it exactly (what deals/quotes are included in it, what financial institutions are ...
110 views

What makes investors risk averse?

There are some regularly-occuring events that coincide with a rise in the implied volatility of an asset. For example, in advance of an firm's annual earnings report, it is typically expensive to buy ...
100 views

How literature come up with risk-neutrality problem, considering that market is not really risk-neutral?

I am searching on real-option pricing deficiencies to encounter risk-neutrality. As we know risk-neutrality assumption, is not hold in real situations. The problem is that I could not classified ...
232 views

How is stock data objectively different to this random walk?

I have a random walk that is generated as so using python, numpy, and matplotlib ...
67 views

Duration calculation for perpetuity with continuous compounding

Let's say we have a continuously compounded perpetuity. Does macaulay duration = modified duration? I've read from wikipedia for Bond Duration that macaulay duration = modified duration for ...
622 views

Build a customizable trading engine in python [closed]

I am planning building fully customizable backtesting trading engine in python from scratch as a open source project, the main features i am considering is, It should be fully customizable from ...
253 views

Statistical arbitrage using eigen portfolios

I was trying to understand below paper https://www.math.nyu.edu/faculty/avellane/AvellanedaLeeStatArb071108.pdf Page 20 explains about "Entering a trade". I wan't to know clearly what it means to ...
173 views

Uniqueness of equivalent martingale measure in Black Scholes-Model

Let's consider standard Black-Scholes model with price process $S_t$ satisfying SDE $$dS_t = S_t(bdt + \sigma dB_t)$$, where $B_t$ is standard Brownian Motion for probability $\mathbb{P}$. I ...
66 views

Incompatibility of Lognormal Forward Model (LMM\BGM) and Lognormal Swap Model

In his paper On the distributional distance between the Libor and the Swap market models (and also in his book about IR modeling) D.Brigo says: 10, 11, 12 are defined in the end of message. Do I ...
121 views

Do people actually use VaR in professional settings?

VaR seems like such an obviously flawed metric, I am surprised that it seems to be used so much in the private sector. First, the way it is named and the way it is presented often imply it is the ...
246 views

Consider the following PDE on interval [0,T] $\left(\frac{\partial F}{\partial t}(t,x)+\mu (t,x)\frac{\partial F}{\partial x}+\frac{1}{2}\sigma^2(t,x)\frac{\partial^2F}{\partial ... 2answers 67 views Historical data resources for Indian market What is the best source for historical EOD data for Indian stock market? The data from Yahoo finance for some companies is not up-to-date and Google finance doesn't provide adjusted close prices. What ... 1answer 81 views Understanding how to calculate tracking error I have come across two ways of calculating Tracking Error (TE) but i'm not sure if they are essentially the same. The first way is to calculate the standard deviation of the difference between a ... 4answers 404 views Trader's identity in a limit book In a limit book like NASDAQ ITCH, can liquidity suppliers know the demand-side identity of a trader prior or after a trade? Knowing this will help me with my theoretical model that I am trying to ... 0answers 54 views Inflation/Rates Correlation I've been looking into a short piece of maths a colleague has written on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding is correct, or if my ... 0answers 56 views PerformanceAnalytics and Annual Charting I have seen a charts that look's like Is it possible to do something like this with PerformanceAnalytics or is there any other package for doing this? Thanks in advance 0answers 153 views What machine learning method is more suitable for prediction of financial time series? [closed] I have some time series from a stock exchange market. For each of them, I want to answer the question that whether the price will grow at least p percent in the d coming days or NOT(and during these ... 0answers 29 views Success of trendlines using dividend-adjusted vs un-adjusted data I'm curious whether anybody has any experience with using trend lines drawn using data which is vs isn't adjusted for dividends. For periods of sideways trading that give roughly horizontal ... 0answers 13 views Source on pricing / valuation of trust preferred securities? Is there a good source on pricing / valuation of trust preferred securities? I used GOOGLE, GOOGLE SCHOLAR and NEW YORK PUBLIC LIBRARY, but the results were meager. Found book Handbook of Hybrid ... 4answers 749 views How to avoid having negative volatility when applying Heston model? When applying the Heston model to generate the sample volatility surface, some of the volatility value will be negative. I am just wondering what do practioners normally do with these negative value. ... 2answers 168 views Where can I find a list of VaR and CVaR formulas for continuous distributions? Where can I find more VaR and CVaR formulas for continuous distributions? I collected a list here: 4answers 216 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 ... 2answers 1k views How to calculate the most realistic historical option prices with additional publicly available parameters This is a follow up question of this one. My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes. The ... 3answers 3k views Papers about backtesting option trading strategies I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ... 1answer 111 views Negative Eonia rates I'm curious how the current negative Eonia (Euro OverNight Index Average) rates would impact derivatives pricing. Does it mean that if I post cash collateral to you, I also need to pay you interest? ... 0answers 35 views Variance of “hedged” term structure portfolio increasing? I'm attempting to use PCA to hedge a small fixed income portfolio. I start with one particular bond and chose the nearest other bond to hedge the 1st principle component. This decreases the portfolio ... 1answer 51 views Data on banks’ leverage Does someone know free resources to estimate the leverage of the banking and financial sector at an aggregate level? In particular I would be interested in something like Federal Reserve’s Flow of ... 5answers 391 views Option pricing ? Where to get the dividend yield from? I'm trying to apply Black & Scholes formula for a real example to price a vanilla equity option but I'm strugling a little bit whith the dividend yield. Let's assume I have a stock that trades at ... 4answers 501 views Robust Returns-Based Style Analysis Sharpe's Return-Based Style Analysis is an interesting theory but flawed in practice when working with long-short funds or funds that are changing strategies over shorter periods of time due to the ... 0answers 19 views garchOxFit in R-oxo file does not match Could someone please help me with trying to get the Ox interface to work in R. I get the following errors as output: This version may be used for academic research and teaching only Link error: ... 1answer 72 views Data on margin volumes? I came across a Financial Times article today that said "Peaks in margin trading have been a precursor to bear runs in the past, notably in March 2000 and July 2007." I'm curious if anyone here would ... 1answer 48 views how to use known premium of options to determine premium of options with another strike? Assuming constant volatility across all strikes, how to use known premium of options to determine premium of options with another strike? e.g. suppose we know premium of \$40 call and put, \$50 call ... 1answer 86 views Briefly stated, why does the function N(x) appear in the European call option pricing model? I'm aware of the the mathematical formula for the price of a European call option on a stock however I'd like to think about it in an intuitive way. 0answers 51 views What is Equity Asian Hybrid? As listed in http://www.vectorrisk.com/Views/Solutions/ProductList.aspx What's an Equity Asian Hybrid? Any references? What is exactly a hybrid product? 1answer 228 views If I am very fast (less than 10 microseconds latency) what would be the first strategy to execute? [closed] Let's assume I found the holy grail of low-latency trading (which I didn't). For educational purposes, what would be the first strategy I would direct my trading code? 1answer 707 views Where can I find literature (books, articles, etc.) about basic HFT / arbitrage strategies? [closed] I am not looking for your winning strategies. Just the basic stuff from where to start. Can anyone share their opinions about what should I read to hit the ground running? 2answers 81 views Why is the duration of a bond important? I know what duration measures, but now in the age of computers why is it useful? If the yield changes, we could just simply plug the new yield into a program, or excel or something like that, and ... 0answers 77 views run time error 424 in IB TWS Excel DDE API; failed to add combo orders I'm using an Excel DDE to connect to Interactive Brokers TWS via their API 9.72 sample, excel 2013. When I tried to create a combo order, the rum error code 424 said "object required". It seems that ... 1answer 49 views What are the properties of the Expected Shortall measure when split in multiple time periods? Suppose I have a single time series of losses$L$that consists of two sub-parts$L_1$and$L_2$. Is there a relationship that relates the expected shortfall of$L$to the expected shortfall of$L_1, ...
107 views

I am wondering why most online brokers restrict multi-legged options spread trades to have a maximum of four legs? Also, is there a broker that allows you to trade say 6 or 8 legged option spreads.
596 views

How can I calculate Fama-French betas for a particular stock?

For a particular stock, what's the simplest way to calculate betas for the Fama-French factors SMB and HML?
59 views

What is meant by “position at a given time” in the context of a series of forex trades?

Suppose you are only talking about a single currency pair, say EUR/USD. Throughout some period of time, you engage in trades with various other parties, sometimes buying, sometimes selling. The rates ...
12k views

Why does the minimum variance portfolio provide good returns?

I've been a researching minimum variance portfolios (from this link) and find that by building MVPs adding constraints on portfolio weights and a few other tweaks to the methods outlined I get ...
59 views

Transform MPT optimization problem

I am trying to teach myself about MPT and optimization. I understand that MPT solutions can be found using three equivalent optimization problems: Minimizing variance for given return limit ...