3
votes
2answers
173 views

How to get around flat likelihood function when calibrating GBM parameters?

I want to calibrate jointly the drift mu and volatility sigma of a geometric brownian motion, $$\log(S_t) = \log(S_{t-1}) + (\mu - 0.5*\sigma^2) \Delta t + \sigma*\sqrt{\Delta t}*Z_t$$ where $Z_t$ ...
3
votes
1answer
74 views

compute technical indicators from candle data

i have a rookie question but can't find the answer anywhere so..what is the right way to compute a simple moving average when you have an array of (open,close,low,high) tuples ? From what i saw so ...
5
votes
1answer
201 views

KMV-Merton Probabilties of Default vs Moody's EDF

Moody's used to publish probability of default estimates from their Moody's EDF model, but they have temporarily discontinued it. I understand that the Moody's EDF model is closely based on the Merton ...
15
votes
2answers
1k views

Why isn't the Nelson-Siegel model arbitrage-free?

Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e. $$dX_t=\sigma dB_t-AX_tdt$$ and the spot interest rate evolves by the following equation: $$r_t=a+b\cdot X_t.$$ After solving for $X_t$ ...
1
vote
1answer
44 views

the cash flows behind closing out futures positions

I always get confused about the cashflows occurring when a futures position is closed out. For example, say it is January and I enter into a long December Futures position with a futures price F(jan). ...
0
votes
1answer
68 views

can an fx forward price simply be divided into 1 to quote the inverse?

Qu 1. Say I ask for EURUSD 1 week and get prices: 1.120986 / 1.120216 Does that mean to price USDEUR 1 week I can divide 1 / 1.120216 and 1 / 1.120986 and get rates: 0.8921 / 0.8927 Or is that ...
2
votes
0answers
59 views

How can the time value portion of an option be higher than 100%?

Here's a screenshot from InteractiveBrokers TWS for the near-the-money put and call on the ES Dec '15 Future: The absolute value of the time value, 9.50, makes sense. But why is the percentage ...
0
votes
1answer
19 views

Raw (level) variable is significant while log return is not significant

I know this might be an "amateur" question, but I am pretty surprised to see the following fact: I have a dependent variable, let's call it Y. Then I have an independent variable, let's call it X. ...
2
votes
0answers
70 views

Callable bond price sensitivity to Hull-White volatility changes

I'm using classic Hull-White model for short term interest rate dynamic: $$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$ (Notation is quite intuitive, anyway I am using the same as Wikipedia ...
2
votes
2answers
3k views

Where can I download intraday series for DAX and S&P500 Index?

Where can I download intraday tick data for DAX and S&P500 index prices? I found only daily closing prices.
4
votes
3answers
3k views

What are the implication of a negative risk-free rate on SML?

What happens to the Security market line (within the CAPM model) when the risk-free rate turns negative?
27
votes
9answers
3k views

Has high frequency trading (HFT) been a net benefit or cost to society?

Various studies have demonstrated the very large and growing influence of high frequency trading (HFT) on the markets. HFT firms are clearly making a great deal of money from somewhere, and it stands ...
2
votes
1answer
46 views

Where can I get alerts for future delisting?

Suppose I have a large universe of US stocks and ETFs (3000). Is there any site where I can get free information for tickers that are delisting ? E.g. recently: (1) on 9/18/2015, Broadcom (BRCM) ...
0
votes
0answers
39 views

How to use Chow Lin method?

Can someone give me a simple explanation of how exactly this method works. If I have a dataset of say 10 quarters (dependent variable); how should the independent variable (say monthly data) be ...
1
vote
1answer
53 views

Immunization: Whats the best way to hedge my short interest rate exposure?

What's the best way to hedge a portfolio against a rise in rates? Portfolio: long bonds different maturities. a) parallel shift b) convex shift (short and long term rise more than mid term) How is ...
2
votes
0answers
56 views

Risk Neutral Variance Gamma

In the risk neutral version of the Variance Gamma model the stock dynamics are $S_T=S_0 e^{ (r-q+\omega)t + X(t;\sigma,\nu,\theta)}$ with $\omega=\frac{1}{\nu}ln(1-\theta \nu - \frac{\sigma^2 \nu ...
1
vote
1answer
90 views

Delta hedging cost of exotic options?

I'm simulating dynamic delta hedging for up-and-out call option. For plain vanilla call options, I heard that the option price is the expected value of the accumulated delta hedging cost. Does it also ...
2
votes
2answers
260 views

How to predict daily range of forex?

I am trying to predict the intraday moving range of stock/forex (essentially, high-low). Here are some ideas based on what I've been reading recently (do not have quant background, so basic level of ...
11
votes
5answers
6k views

What is a martingale?

What is a martingale and how it compares with a random walk in the context of the Efficient Market Hypothesis?
4
votes
1answer
102 views

Tests for Mean Reversion in a Portfolio Rebalancing

On a single time series one can run a Dickey-Fuller test to determine if the asset is mean reverting or at least has been mean reverting during your sample. Is there a way to test for mean-reversion ...
2
votes
1answer
63 views

Is credit exposure conditional on default?

Credit exposure defines the loss in the event of a counterparty defaulting, and expected exposure is the average of all credit exposures. BUT When adjusting the CVA calculation to account for ...
1
vote
1answer
38 views

Testing day of the week effect

I am currently reading a bit about testing day of the weeks effects. I saw two different model specifications and wonder how to interpret the results. The first model type includes only 4 dummies for ...
1
vote
0answers
35 views

What is the minimum price change required for a trading position increase of 1?

Suppose I have a trading system that calculates the daily risk adjusted position from the annualized risk, that is, the standard deviation of the returns of a stock over an arbitrary period of time. I ...
2
votes
0answers
66 views

How are Quandl monthly S&P500 earnings estimates derived?

Can someone explain how the monthly earnings estimates are derived for S&P500? Quandl sources multpl.com, who state: ...
1
vote
0answers
33 views

RQuantLib FixedRateBondPriceByYield() Non-tradable error

How do I use FixedRateBondPriceByYield() function on maturity date that is earlier than today? I get "non tradable error" when applying on date older than today. ...
-2
votes
1answer
39 views

regression analysis [closed]

"A model estimated with a large no. of observations may allow one to reject null hypothesis of zero coefficients for many explanatory variables.Thus we might choose to select a somewhat lower ...
1
vote
1answer
75 views

How we decide the target price for stock

people giving intraday target price of particular share. Most of the times the target is achieved.I am still puzzled how the target price of stock for intraday can calculated. To elaborate my query ...
0
votes
1answer
102 views

Why can't marginal CVA be used in pricing?

"Marginal CVA may be useful to breakdown a CVA for any number of netted trades into trade-level contributions that sum to the total CVA. Whilst it might not be used for pricing new transactions (due ...
1
vote
0answers
75 views

bandwith portfolio rebalancing in python

I want to calculate a bandwith rebalancing machanism for a portfolio of two assets. As soon as the performance of one ov the assets gets bigger or smaller than the other one + a defined tolerance ...
0
votes
0answers
25 views

Luis Torgo - Case Study, Function creates high leverage

I am doing Luis Torgo Case study - Predicting Stock Market Returns and I have a problem when I use the function trading.simulator in the package DMwR ...
2
votes
3answers
1k views

How to trade volatility?

I am analyzing the volatility of financial stock returns and let's say I have a pretty good model to forecast tomorrows volatility of the stock returns. So let's say for simplicity reasons I have a ...
2
votes
2answers
72 views

Volatility of Multiple Stocks

According to BSM, Stock Price follows log-normal distribution s.t. $$S(t)=S(0)*\exp(\sigma\sqrt t Z-(\sigma^2t)/2)$$ where Z is standard normal variable Then volatility of this stock is $\sigma \sqrt ...
1
vote
2answers
86 views

Question about find no arbitrage trading strategy

We got the stochastic process for stock price of n stocks at continues time. We can find if there is a arbitrage trading strategy or dominant trading strategy. I wonder if we cannot find such ...
6
votes
5answers
240 views

Kurtosis in asset logarithmic returns

Assets such as stocks usually display kurtosis in their logarithmic returns. However, their logarithmic returns in a time interval $n$ are the sum of smaller logarithmic returns in $1/n$ time ...
1
vote
0answers
30 views

Jacobian for Newton method for American options by front fixing

In this paper Penalty and front-fixing methods for the numerical solution of American option problems a front fixing method based on Newton is described for an American put option is described. I am ...
1
vote
1answer
27 views

Adjust regression for thin trading

What procedures can I apply to control in a regression on company returns for thinly traded stocks? Is the inclusion of the SMB-factor a potential approach? Or just a dummy variable indicating if a ...
1
vote
1answer
30 views

Fitting (marginal/multivariate) distributions to financial return data

I have calculated the simple arithmetic return on a number of different financial securities and am fitting both a Student-T and Generalised Pareto Distribution. My question is can I just use the ...
3
votes
0answers
75 views

Portfolio insurance strategy with path dependence

I have the following problem. Let us assume that $S_t$, the stock price follows, geometric Brownian moation with parameters $(\mu,\sigma^2)$. We are given an amount of money $M$ and at each point in ...
4
votes
1answer
81 views

Why are netted positions more volatile?

According to John Gregory, "netted positions are inherently more volatile than their underlying gross positions". Given the context, I think he's talking about close-out netting and not payment ...
0
votes
1answer
76 views

Quantlib bootstraping fails on 5y swap

I'm trying to build a euro swap curve with real up to date data. I should say that examples provided in github work fine. as soon as I add the 5y swap, I got the following error : ...
1
vote
0answers
54 views

Need help understanding basics of cash flow engineering

I'm studying Financial Engineering, a subject I'm completely new to. I'm using Principles of Financial Engineering 3rd Edition and trying to solve the exercises ...
5
votes
1answer
148 views

Seeming arbitrage in excess reserves

In the US banks are required to store 10% of their deposits in cash in the form of Fed Funds. Due to misbalance of demand and supply, some banks borrow such cash from others; the volume averaged ...
0
votes
1answer
50 views

Implied rate of a bond question

A 2 year bond, yield 6%. A 1 year bond, yield 4%. What's the implied rate for the bond that starts one year from now?
0
votes
1answer
28 views

Daily principal payments, accumulated on yearly basis in excel

I am doing something seemingly quite easy: Prinipal calcuation of a loan. I need to calculate daily principal payments and accumulate it on a yearly basis. So my current implementation look like ...
1
vote
1answer
52 views

Lease Accounting / FX Embedded Derivatives [closed]

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 ...
0
votes
1answer
64 views

Real-time Tick Filtering

Is anybody aware of any papers regarding tick/quote filtering algorithms. I'm aware of the Olsen stuff, but I'd prefer something with fewer free parameters.
5
votes
4answers
855 views

How popular is the IRR as a tool for capital budgeting, nowadays?

This 2004 McKinsey Quarterly article reports that, back in 1999, three-quarters of CFOs always or almost always use[d] IRR when evaluating capital projects. The same article warns against the ...
0
votes
2answers
61 views

How does tranching cause leverage?

I've read that leverage is created with the tranches of a CDS index because the more junior tranches have more risk than the index. I get that the more junior the tranche the more the risk, but I ...
1
vote
2answers
60 views

What is an estimated rise in the interest rate of the 10-year Treasury in this scenario?

Suppose that the Federal Reserve had raised interest rate by 0.25% last week 17Sep2015. What is an estimated rise in the interest rise of the 10-year Treasury? Which futures contract should one use to ...
5
votes
3answers
64 views

Jegadeesh and Titman 1993 Power of their test

I am reading this classic paper(http://www.business.unr.edu/faculty/liuc/files/BADM742/Jegadeesh_Titman_1993.pdf) and got confused by one of their arguments on their overlapping portfolio strategy to ...

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