# All Questions

137 views

### Required Rate of Return vs Expected Return

I faced a problem that gives the following information: market risk premium, and risk free rate is given You currently have a portfolio of amount of x, beta b1. Now there is a new investment ...
221 views

### Volatility Return Distribution/Garch Modeling

For simplicity sake, if stock returns are normally distrusted, would that imply that second moment, variance/volatility, is chi-squared distrusted? If so wouldn't that imply the statistics(employed to ...
2k views

### Easiest and most accessible derivation of Black-Scholes formula

I am preparing a QuantFinance lecture and I am looking for the easiest and most accessible derivation of the Black-Scholes formula (NB: the actual formula, not the differential equation). My favorite ...
283 views

### How does the CME set margin requirements on commodity Futures

I am trying to model margin requirements on various commodity futures, however it doesn't seem that the CME has released the formula they use to set these performance bonds. I am sure that they use ...
176 views

### When calculating CIP between EU and US, which interest rates data to use?

I am wondering which data to use to test the Covered Interest Rate Parity between Europe and the United States. Recap that for the CIP to hold, it should mean that F/S = (1+r)/(1+r*) where F = the ...
158 views

### Initial margin requirement as percentage, not dollar value

Problem from Finan, FM/2 On 12-30-1998, you decided to bet on the January effect. ON that day, you bought 400 shares of Microsoft on margin at the price of 139 per share. The initial margin ...
478 views

### Dynamic hedging strategy example

I am faced with the following problem. Let the standard Brownian motion $W_t$ be the price process of a traded asset in an economy with zero interest rate. Define $$A_T=\frac{1}{T}\int_0^T W_t^2 dt$$ ...
988 views

### Stochastic modeling of stock price process

Apart from the model of Geometric Brownian motion is there any other "widely accepted" stochastic model to characterize the dynamics of a stock price process?
231 views

### which product supports Basel III LCR (liquidity coverage ratio) reporting?

After Jan 2013 change, now the main reporting changes requested from Basel III is LCR, Liquidity Coverage Ratio. Moody's has a product named RiskAuthority (previously Fermat CAD) that is going to ...
65 views

### Creditworthiness indicator for copula one-factor model

In this paper in equation 15 on page 261 dealing with one factor copula model, one is using creditworthiness indicator as one of a variables. It is defined as Y_c = \sqrt{\rho_c} Z ...
69 views

### Standard Assumption Terminology

Regulators are starting to analyse (or at least they are talking about it) model assumptions. We all know that too often our assumptions are just in the model documentation. Furthermore, we have no ...
1k views

### Non-SQL methods for high-frequency accounting?

Does anyone know of any prior art for non-SQL data structures for high-frequency accounting, whether client, broker, or exchange-side? I'm thinking specifically of the problem of booking individual ...
113 views

### Floor and Cap problem

So I have a problem from Marcel Finan's "A Basic Course in the Theory of Interest and Derivative Markets." We are going over floors and caps, covered puts and covered calls. Consider the following ...
241 views

### How do bond pricing formulae differ between the US, UK and the Euro zone?

Let's restrict the scope of the question a little bit: I'm interested to learn about major differences in pricing formulae for nominal government bonds. The pricing formulae for inflation-linked bonds ...
516 views

### VaR for portfolio of funds

Let's assume we need to calculate a 1-day VaR for a portfolio of funds. Funds are traded, they can be bought and sold every day. We know exactly what the assets in each fund are. What is the right way ...
104 views

### Quantitative risk management strategy for a large participant in an illiquid market

Are there any practical quantitative risk management strategies for a large participant in an illiquid market with a few dominant players? By a large partcipant I mean someone who has significant ...
49 views

### CFLEX 2.0 accounting

The CBOE has a trading platform for custom options with CFLEX 2.0. However, it doesn't include a system to account for balances. Is there software to account for positions on CFLEX 2.0?
64 views

### FRA-Strategy: Make 3-month and 1-year Excess returns comparable

I am trying to analyze an investment strategy that tries to exploit the empirical difference between forward interest rates and realized spot rates. I am using FRAs to capture the difference. I am ...
283 views

### Aprox intraday implied volatility using intraday option prices and EOD greeks

I have two options datasets: EOD IV and Greeks Tick option and underlying prices I'm looking to calculate IV for each tick. Is there a way to approximate the ticks' IV using last EOD Greeks and ...
32 views

### How to set up Heston and Rouwenhorst regression? [duplicate]

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
126 views

### Any one know how to implement the Heston and Rouwenhorst country-sector effects regression in R?

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
434 views

### Mathematical theories of (sub)-optimal trading strategies under “idealized” assumption - price is random process known to trader

The question is NOT about real trading, but about simplified mathematical models for trading. One of the main problems in trading is that asset prices are not correctly described by the some random ...
1k views

### George Soros models

Mr. Soros in his books talked about principles which are not used by today's financial mathematics — namely reflexivity of all actions on the market. Simply it can be given by following: ...
217 views

### Blackbox Optimization + Bootstrapping = Parameter Selection?

Most automated trading systems have a number of embedded parameters such as the lookback periods, entry and exit thresholds, etc. This is like the moving average crossover system or any of the systems ...
543 views

### Predict Quadratic Trend in Time Series

Can anyone kindly point out if I made any mistakes in making predictions using quadratic regression model in time series? I called the predict() function with the appropriate data vector and model, ...
578 views

### Analyze raw tick data

I'd like to work with raw tick data and naturally this data is unevenly spaced (for example, a couple of quotes are at the same second etc.) For example ...
366 views

### Monte Carlo simulating Cox-Ingersoll-Ross process

The CIR process is given by the SDE $$\mathrm dr_t = \theta(\mu-r_t)\mathrm dt + \sigma\sqrt{r_t}\mathrm dW_t$$ where $W_t$ is a Brownian motion. I am interested in finite-difference schemes of ...
980 views

### Is Unexpected Loss ever used in Basel II?

In Basel II, EL is useful. It's calculated as $$EL = PD \cdot EAD \cdot LGD$$ in advance IRB (internal rate-based approach), Correlation R = 0.12 \frac{1 – e^{-50 \cdot PD}}{1 – e^{-50}} + 0.24 ...
713 views

### Comparing MVO with Resampled Efficient Frontier

My question: How can I compare the Resampled Frontier (REF) to the standard MVO frontier when I have been provided with $\mu$, $\Omega$, and don't have access to true future data to test real out of ...
484 views

### Statistical models for exchange rates?

What stochastics processes (if any) are used to model currencies exchange rates and how good are such models ? References on subj. are also highly welcome.
366 views

### What is the difference between a recovery swap and a CDS?

As I understand it, recovery swaps and CDS are both used to privide hedging against the default risk of a loan. What is the difference between them?
25k views

### How can I go about applying machine learning algorithms to stock markets?

I am not very sure, if this question fits in here. I have recently begun, reading and learning about machine learning. Can someone throw some light onto how to go about it or rather can anyone share ...
138 views

### Quality of GAINDATA timestamps

Does anyone have a view on the quality of the timestamping of GAINCAPITAL's free historical data. There is non-FX data there and I wonder if the timestamps are in sync?
168 views

### What is lagged interest rate?

I am trying to reproduce a plot in "Statistics and Data engineering for Financial Engineering" by D. Ruppert. The author uses the risk free returns data available in the Ecdat package in R. ...
385 views

### Risk Budgets with Target Portfolio Volatility

I'm working through the implementation of a risk budgeting approach as described in the recent Roncalli paper. The idea is that the portfolio manager sets a contribution of total portfolio volatility ...
210 views

### Matlab; How to specify Coupon frequency for Interest Rate Swap

I'm trying to price an interest rate swap and would like to change the default coupon payment frequency from 1 a year to 2 or 4 a year. I'm using ...
1k views

### What does the prefix PX stand for on a Bloomberg Terminal?

Simple question for the group: Regarding PX_LAST, PX_VOLUME etc... What does the "PX" prefix stand for?
135 views

### Relating Quantitative Easing to the rally in the SPX

The Fed's balance sheet has been expanding over the last few month due to QE3. When the Fed goes out to buy treasuries or MBS, it's taking those securities out of the market and exchanging them with ...
266 views

### LIBOR Rates available in CSV, XML etc

Is there a website that offers current LIBOR rates for all tenors for free in machine readable formats?
129 views

### Different Exercise Style Options on Same Underlying

Some equities on European markets have options traded in two different exercise styles: American and European. Examples: ABB and ABB (european) on Eurex Banco Santander on MEFF Consider ...
184 views

### Which prices to use to compute realized volatility?

For computation of realized volatility, especially range based volatility, deal prices are commonly used. If Level I data available should the deals data still be used or another measures of spot ...
58 views

### Discount of Asian vs European vols

I understand the discount for Asian vs. European vol depends on time to expiry and length of averaging period. This makes sense intuitively; a short averaging period far away blurs into a single ...
51 views

Example: ...
110 views

### Are there any good benchmarks for performance of vanilla option pricing code?

I've seen parsec (http://parsec.cs.princeton.edu/index.htm), which has a PDE pricing component, but the distribution is enormous and I haven't bothered to try to download it for review. I'm ...
710 views

### So many volatility models. Any comparisons of them?

Are there any papers that make an explicit contrast/comparison of the following (or other) vol models in terms of the suitability for addressing some empirical problem? Wavelet multiresolution ...
228 views

### How to adjust local currency returns to US\$/EUR return?

Iam doing research on return characteristics. As of today the scope of the research has changed from a local investor point of view to an international investor point of view. This basically means ...
408 views

### Implied Volatility for Asian option

I am new to the topic of Asian options. Assume I want to price an Asian put (fixed strike, discrete average) in the Black Scholes world. I know implementations to calculate the value but what is the ...
596 views

### How to optimize a portfolio under *both* maximum diversity ratio and minimum variance

I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question. My question is: how can I optimize a portfolio to suit ...