2
votes
1answer
360 views

Pricing an interest rate swap using Eurodollar futures

I see this posted but no answer given. I think it would be a good idea if we have a question on here to illustrate an example of how to price an interest rate swap. So far, I understand that that for ...
11
votes
4answers
860 views

Quantitative Math required for Market-making?

I understand there is an awful lot of Quantitative Math required for statistical arbitrage/algorithmic trading. However, would someone "in the know" be able to tell me whether there is less ...
1
vote
1answer
147 views

forward vs spot simply-compounded spot interest rate

Question about forward vs spot simply-compounded spot interest rate.Some definitions $P(a,b)$ a zero coupond price at time $a$ and maturity $b$ $L(a,b)$ simply compounded spot interest rate set at ...
0
votes
1answer
446 views

Bloomberg Zero Coupon Rates

As some of your may know from my other posts, I am working on a Dynamic Nelson Siegel (DNS) based relative value trading model. On simulated data (which satisfies all the assumptions) of the DNS it ...
0
votes
1answer
78 views

OIS discounting pre and post crises

I have a Dynamic Nelson Siegel (DNS) based rv model. I want to know if I can use pre and post-crises curves interchangeably in my calibration and out of sample testing. I.e. those without OIS ...
0
votes
3answers
372 views

What Is A Good Success Rate Using Machine Learning For A Beginner?

I know this question will be quickly destroyed and my account summarily banned, but I just have to ask: For a trader using machine-learning algorithms (SVMs, ANNs, GAs, Decision Trees) for ...
1
vote
2answers
93 views

is there an accepted method for quantifying risk of inaccuracy of nascent trm systems?

Have a somewhat meta question here. I am part of a trading risk management implementation project. I also manage day to day risk reporting to management and the trading desks. Our implementation was ...
0
votes
2answers
61 views

Infinite autocorrelation - Unit root?

I have a time series of gold prices, on which I want to build an ARIMA model. The series is autocorrelated and if I can difference as often as I want, it always is. First: data: d1gold Dickey-Fuller ...
2
votes
4answers
229 views

Why can sometimes stock prices rise when interest rates rise?

Basic macroeconomics theory states that stock prices are inversely correlated with interest rates, i.e., when interest rates rise, borrowing is more costly, and thus companies with huge debt would be ...
4
votes
1answer
130 views

questions on VAR manipulation

The book of Financial Risk forecasting by Danielsson gives the following example about VAR manipulation. I have two questions: 1) If $0> VAR_1 > VAR_0$ , why the following figure plots it as ...
2
votes
1answer
54 views

Weighting several returns over different time frames

I have a set of annualized returns over 4 time periods: 10yr, 5yr, 3yr and 1yr. Is there a way to weight each return to have a "more representative" return?
3
votes
1answer
94 views

Solving the Jamshidian Zhu (1997) PCA short rate model

This is my first time posting a question. I have very limited experience in the field of stochastic calculus and interest rate modelling. I have been tasked with implementing the short rate model ...
1
vote
1answer
103 views

Arbitrage Strategy Proof in Bjork

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition Proposition 2.9 Suppose that a claim X is reachable with replicating portfolio h. Then any price at t=0 of ...
3
votes
6answers
347 views

Do quants need to know Accounting?

Do quants need to know Accounting? In my school's undergrad Quant program, we had Financial Accounting and Managerial Accounting, which were listed as prerequisites for our undergrad Finance ...
2
votes
0answers
104 views

Johansen-Ledoit-Sornette Model

im trying to predict crash time by using lppl model(JLS). My codes can run, but the error is to high....I try with some other initial values, but still can't reduce the error.....How i can reduce ...
2
votes
0answers
74 views

Simple Forward Interest Rate Proof

Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ...
1
vote
1answer
347 views

Hedging a Long Equity Swap by Shorting the Stock

Suppose that I enter an Equity Swap, such that I pay a floating rate and I receive the equity return. The payment is every one year for both the rate and the return, and the swap expires in one year. ...
1
vote
1answer
139 views

Black–Karasinski - Market Price of Risk

In the past I have calibrated simple short rate models to the term structure by using maximum likelihood to get the parameters of the Vasicek/CIR sde, and then use the ZCB formula and the current ...
-1
votes
1answer
69 views

how to calculate avarage variance and avarage covariance

I would like to figure out how to calculate av.variance and av.cov. I know how to calculate portfolio variance( for large ...
1
vote
2answers
521 views

Why is Value at Risk non-negative?

When reading the book of Financial Risk Forecasting, I saw the following example. I am not very clear about two points marked with yellow and green respectively. ...
5
votes
0answers
131 views

American Swaption Heding with Malliavin Calculus

Hedging American Swaption Hello, I priced an American swaption using Black model with swap rates diffusion to find the european (call) price at t. $$ C_t = (\delta \sum_{j=n+1}^{M+1} ...
3
votes
1answer
522 views

Pricing a FixedRateBond in Quantlib: yield vs TermStructure

I am trying to price a simple U.S. treasury in QuantLib, using two methods. The first method calls FixedRatebond.dirtyPrice(...), passing in a YTM and other parameters. The second method involves ...
4
votes
1answer
273 views

Risk-neutral pricing in incomplete markets

I know that in order to use the risk-neutral valuation principle, that is, pricing options as their payoff function under a risk neutral measure, one has to have a complete market. But in the ...
2
votes
1answer
114 views

Swaptions vol trading lognormally

What does this mean: "Front-end vols have been trading lognormally while longer tails have traded normally." I read this in a research report, in the context of ...
2
votes
0answers
25 views

How do derivatives affect capital structures?

Yesterday, I was at a lecture where the speaker said that the impact of derivatives was often to make senior debt, in effect, subordinated debt (in terms of priority, recovery rates, etc.)? How do ...
4
votes
3answers
108 views

How does US banks ensure that other country's banks aren't counterfeiting USD?

I have had this question for a long time. For example, if I wire 50M USD from China to the US, does the Chinese bank physically deliver 50M USD cash to the US bank? or is it just changing a number in ...
0
votes
2answers
325 views

Beta of FTSE100 stocks against benchmark index FTSE100

first post so if I write something silly don't hold it against me. I calculated beta for almost all the stocks that compose the FTSE100. All have beta < 1. This, as far as I understand it, means ...
5
votes
3answers
368 views

Deriving Interest Rates

I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds. However, what I'm struggling with is how ...
1
vote
2answers
115 views

Is the purchase of a stock publicly accessible?

If an investor bought a stock, could another private party access that information anywhere? Does the SEC/exchange itself create a real time/ historical record of who holds what stocks, and is that ...
5
votes
3answers
269 views

Platform for Quantitative equity portfolio

What are the most popular platforms used for quantitative equity portfolio management/research? I've only used Barra so far for their factor models. Is there any specific feature or model you think ...
0
votes
1answer
49 views

What does 2 Year Annualized mean compared to 1 Year Annualized

I am looking at a company's financial report and there is a table in it that lists returns over different annualized periods. It ranges from 1 year to 20 years. Would a 2 year return in this table be ...
3
votes
1answer
161 views

Electricity market : how to design an optimal hedging strategy using spot and futures markets for an industrial consumer?

Here is the problem : we should adopt the point of view of an industrial company which purchases electricity as an input in its production line and which wants to achieve the following two goals : ...
2
votes
1answer
37 views

What different techniques exist for modeling exotics near payoff discontinuities in Finite Difference method?

If you are modeling an exotic, like a binary or a barrier, and hedging it with vanillas that have strikes quite close to the exotic's strike, then a large asset step size, for example, $\delta S = ...
1
vote
1answer
1k views

robust open source Kalman filter library in C++

I would like to know if anyone has experience with a good open source kalman filter implementation in C++ that I could use. I require an implementation that supports computation of likelihood similar ...
1
vote
2answers
159 views

Is stock price priced in the uncertainty?

Consider a one step binomial tree model for stock price. The classical setup is as below: At time $t=0$, the stock price is $S_0$. At time $t=1$, the stock has probability $p$ to jump up to price ...
0
votes
0answers
79 views

Option payoffs and replicating payoffs

I've come across the below question which has no answers to it and I was hoping someone could provide some help. I know it quite a long question and I appreciate any help with this. An investment ...
2
votes
2answers
143 views

Understanding the conditioning in a GARCH process

In a GARCH model like the following $$y_t=\sigma_tz_t,\\ \sigma_t^2=\omega(1-\alpha-\beta)+\alpha y_{t-1}^2+\beta \sigma_{t-1}^2$$ where $z_t$ is assumed to be iidN(0,1), we say that conditional on ...
1
vote
1answer
48 views

Which more topic should be covered in my undergraduate program? [closed]

Below is the topics covered in my undergraduate economics program. I want to know which course should I take to get a full overview of topics in finance today. Econometrics Micro, Macro Economics ...
2
votes
3answers
252 views

Why does [dz(t)]^2 converge to dt over infinitesimally short time periods?

I have some trouble understanding a chapter in George Pennacchi textbook "Asset Pricing". Here the author shows that the square of a Wiener Process $[dz(t)]^2$ converges to $dt$ for infinitesimally ...
0
votes
1answer
129 views

Intuitive understanding of Black-Scholes pricing

The Black-Scholes formula entails market completeness, so the price of an option is only the cost associated with dynamically hedging the option. Where does this cost come from? I don't see how ...
5
votes
3answers
260 views

What is the tau parameter in the Black-Litterman model?

Could someone please provide me with a clear and concise definition of the $\tau$ parameter in the Black-Litterman model? It seems one is rather hard to come by. I understand it to be the 'weight on ...
0
votes
1answer
110 views

investors hold efficient portfolios because generally they are risk averse

I'm trying to find a concept on this question,in my understanding investors differ on risk preference,the question said investors hold efficient portfolios because they are generally risk averse? ...
0
votes
0answers
58 views

Kalman Filtering with Linear Restrictions

A question on this topic has been asked before: Combining a linear Kalman Filter with additional linear constraints? and I checked out some of the references given: ...
1
vote
2answers
98 views

Basis Risk for Futures/Options

I am just reading about basis risk. It is being described as risk of the price of the hedging instrument not fluctuating the same as the instrument itself. I was just wondering, if we bought a ...
1
vote
1answer
162 views

Short-term directional trading

Did value of ratio between informed and uninformed traders at market, making difference to profitability of short-term directional trading on that market? My guess is yes and better play short-term ...
1
vote
0answers
180 views

The option values are different from two r package - foptions,rquantlib

The results are very different.I know the code from quantlib and the result of quantlib seem right(close to market price). Is there anyone know why the value from fOptions is so large or fOptions used ...
0
votes
1answer
198 views

Controling ex-post volatility by ex-ante limits

In the context of mutual funds the KID directive forces us to calculate 5 year ex-post volatility of a (market) fund (weekly returns). Thus each week we look back in the past and calculate volatility ...
3
votes
2answers
157 views

Intuition behind interest rate models

I am modelling the 3M yield of US Treasuries using an ARMA/ GARCH approach. Most interest rate models (e.g. Vasicek) describe the process as follows: $r_{t}-r_{t-1} = some ARMA+ \epsilon_t $ ...
0
votes
0answers
27 views

Recording Bill payment of Credit Sale with existing Customer Deposit

Need your help for below scenario : 1) Sale of an item for 200.00. But customer pays 250.00 and asks to keep $50 as an advance for next transaction. For this transaction, Journal Entries will be as ...
-1
votes
1answer
176 views

Is the market really Normal. Is Implied Volatility Historically Correct?

Ok. So as of 6/10/2014's market close the SPY was 195.6 and the VIX closed at a ridiculous recent low of 10.99. Now because the VIX (IV) is the implied volatility of 1 month contracts on the SPX and ...

15 30 50 per page