2
votes
2answers
501 views
How to calculate COMPOSITE underlying implied volatility from ATM (near month) option prices?
I am trying to calculate the implied volatility of an underlying given observed prices of call and puts. There are two scenarios:
The ATM strike is pinned by the market (i.e. underlying level == ...
8
votes
3answers
3k views
How should I calculate the implied volatility of an American option in a real-time production environment?
There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. ...
9
votes
1answer
312 views
copula-marginal algorithm
has there been any interesting work or advances on the copula-marginal algorithm (CMA) as proposed by
Attilio Meucci. I am unable to find anything on the web other then the original article, here is ...
5
votes
5answers
544 views
How to fit probability density function from sample moments?
If I have calculated the sample mean, variance, skew and kurtosis of a set of data, how would I go about fitting a probability distribution to match these moments (i.e. choosing a probability ...
6
votes
1answer
1k views
What are the main differences between discrete and continuous time models when modeling asset price dynamics?
My intuition says that both approaches, discrete time models and continuous time models will be models (i.e. approximations) of reality. Therefore it should be possible to develop useful models in ...
-4
votes
1answer
136 views
Can you help identify/name this equity options strategy? [closed]
I am thinking of making such a trade:
BUY PUT $590 MARCH
WRITE PUT $600 APRIL
I have done some reading and it looks like a diagonal put spread, but the diagonal ...
9
votes
2answers
313 views
local price return and volume relationship
I wanted to see how the stock price and volume relationship is locally.
So I tried ranking both the daily return (at day t) and volume (at day t) base on a 30 day rolling window with historical daily ...
-4
votes
1answer
1k views
How to annualize log returns? [closed]
I have daily log return from 01.01.2011 to 10.28.2011 and I'd like to compare the total return of that 10 months period (which is of -7.093%) to annual log returns of previous years.
I know it's ...
2
votes
0answers
120 views
Calculating stock weight for SEC13F filers
I am trying to evaluate weight of stocks in portfolio for an investor. For this purpose
I use SEC13F filings for particular quarters and historical prices from Yahoo. There are stocks in portfolio ...
12
votes
5answers
2k views
Proof that you cannot beat a random walk
There is much speculation to what degree financial series are random (and what kind of randomness prevails).
I want to turn the question on its head and ask:
Is there a mathematical proof that ...
8
votes
3answers
1k views
How does pair trading work?
Explain pair trading to a layman. What is it, why would you want to do it, and what are the risks? Provide a real life example.
2
votes
0answers
221 views
vix futures vega per contract and tvix vega per share
How much vega in spx terms (straddle contracts) or dollar value is in 10 vix futures contacts and 10000 shares of tvix
4
votes
0answers
291 views
ATM volatility versus OTM volatility and directional standard deviation
The forward instrument vol curve is skewed to the downside (50 delta risk reversal, 25 put, 25 call) were trading several ticks to the put).
Is there a smaller standard deviation (in price terms) to ...
4
votes
1answer
237 views
Pricing a bond future with a basket of deposit futures
I have a future on a two-year UK government bond that I wish to price. The bond future expires in 3 months. I was thinking of building a portfolio of 3-month deposit futures (1 x 3 month deposit ...
9
votes
1answer
395 views
How are Expected Shortfall and Variance related?
I would like to know how Expected Shortfall $SF_\alpha$ and variance $\sigma^2$ are related.
If I follow what Aaron Brown answered in this post, when the underlying distribution is Normal with ...
-3
votes
1answer
311 views
Most commonly used UNIX commands & Python modules/functions? [closed]
I've got an interview coming up for a trade support position at a quant shop. I was wondering if anyone could elaborate on which UNIX commands (grep, !, history, etc.) and types of scripts someone in ...
2
votes
3answers
455 views
Can I perform an asset allocation optimization if assets are perfectly uncorrelated?
(Here is a link to the original post)
I received this interesting problem from a friend today:
Assume that you are a portfolio manager with $10 million to allocate to hedge funds. The due diligence ...
4
votes
1answer
308 views
What's the connection between implied vol curve of SPX and SPY?
I think there should be an obvious connection of the two implied vol curves from the SPX and SPY markets since the underlying of SPX is SP500, while the underlying of SPY is a ETF which tracks sp500 ...
2
votes
1answer
386 views
How can I get intra-day prices via API into R?
I am able to retrieve prices for IVV using this code
library(quantmod)
getSymbols("IVV")
names(IVV)
[1] "IVV.Open" "IVV.High" "IVV.Low" "IVV.Close" ...
9
votes
1answer
1k views
Estimation of Geometric Brownian Motion drift
One can find many papers about estimators of the historical volatility of a geometric Brownian motion (GBM). I'm interested in the estimation of the drift of such a process. Any link on this topic ...
2
votes
2answers
269 views
How to calculate cumulative loss from two factors that have negative correlation?
I went through the most advanced books on statistics and still can't find an answer. There is a well known formula for combining volatility of two correlating variables, but what about adding the ...
18
votes
5answers
3k views
What is a good broker for HFT?
Currently I trade trough IB. I run my HFT strategies (100 roundtrips per hour) but I think that latency is killing me and my profits are shrinking. I need the fastest possible brokers out there which ...
14
votes
6answers
2k views
Can social media be applied to algorithmic trading?
Can social media sites, like Twitter, be used to analyze financial markets for algorithmic trading? How much research has been done on this topic?
5
votes
1answer
319 views
Price volatility instead of return volatility for spread option parameter
I overheard someone at work today talking about a commodity spread option pricing model and he was asking our quant if he should use price volatility instead of return volatility as the volatility ...
5
votes
1answer
342 views
Why are there so many different ways of calculating historical volatility
There appears to be several ways of calculating volatility:
Price volatility (of which there are several variants):
close to close
high low range
average of open, high, low and close
Log returns ...
9
votes
2answers
463 views
How to compute performance attribution between daily rebalanced strategies?
I have a daily rebalanced portfolio of several strategies.
After one month, I now want to attribute the performance to the different strategies. There are several ways to do it.
For instance one ...
5
votes
1answer
88 views
How to remove the risk element from a set of fixed rate mortgage offerings?
Kept waiting in the bank yesterday, with no paint to watch dry, I found myself staring at the mortgage rates. (These are all annual interest rates):
Variable: 2.475%
1 year: 2.90%
2 years: 3.05%
3 ...
11
votes
3answers
3k views
R: How feasible is it to store — and work with — tick data in a database connected to R?
I'm looking to convert some tickdata .csv files into a database on a local disk and then use R to call the data and do my various analytics and modelling.
What are some best practices / ...
6
votes
2answers
368 views
How to minimize the difference between a parametric VaR and a MC-VaR with lognormal assumption?
Given that we want to find the Value at Risk for a portfolio of stocks only, there are two main methods to proceed. In the problem, we also assume that stocks follow a geometric Brownian motion.
A ...
7
votes
5answers
725 views
What functional form describes the implied volatility curve?
It is often convenient to parametrize the implied volatility curve to allow easy interpolation of volatility for any strike or maturity. What functional form describes the implied volatility curve for ...
8
votes
1answer
302 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
158 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
539 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
276 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
482 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, ...
-7
votes
3answers
517 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
457 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
628 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
698 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
251 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
920 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
138 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
335 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
497 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
523 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
859 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 ...
