# All Questions

643 views

### How to calculate compound returns of leveraged ETFs?

Forewarning: this is a complete newbie question :-) I am starting to learn about ETFs by trying to do the numbers. When learning about the compounding effect in leveraged ETFs, I wanted to simulate ...
268 views

### Choosing attributes for SVM classification?

Let's assume I am classifying every trading day as a 1 or a 0. Exactly what I am classifying doesn't matter, but for the sake of this question let's say I am predicting direction of price change. So, ...
73 views

### Individual/casual investors and the bias towards blue-chip stocks?

There's quite a bit of research (example, [1]) teasing out the fact that home/casual/individual investors prefer stocks with large positive skewness. It surprised me, as I was reading a bunch of these ...
220 views

### What makes IRC a market risk?

Since modeling leaves complete freedom we can assume both market and credit risks can enter the picture. However the minimum requirement is (migrations and) defaults simulation, how does this ...
127 views

### Expected length and depth of drawdown

Does anyone know of any model to estimate the distribution of drawdown length and depth assuming a certain portfolio dynamics? The arcsine law seems to suggest that a portfolio can spend a large ...
351 views

### How to create a Stochastic Process through pre specified points?

I want to create a random (quasi random) process which goes through pre determined points and constraints. E.g. I have a daily price series but want to generate intra-day prices with the same OHLC ...
701 views

### How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
147 views

### Backtesting benchmark / control test design

I am designing a backtesting system to test an algorithm. I'd like to have a benchmark / control test results to compare to the results of a custom algorithm. A limited "set" of stocks is selected ...
118 views

### What are the proper metrics to look at for checking discrepancies in these two time series

I am obtaining bid/ask price and volume market data from two different sources for the same ticker and for the same day and checking to see that at time intervals X they are "roughly the same". The ...
700 views

### Why the interest rate for put-call parity is not constant?

Usimg the put-call parity $C - P = S - K · e^{-rt}$ I tried to estimate the value of $e^{-rt}$, the present value of a zero-coupon bond that matures to 1 in time $t$: $e^{-rt} = (P - C + S) / K$ ...
240 views

### Where can I find exercises on building a project finance spreadsheet?

I'm looking for a set of exercises that teach how to build a project finance spreadsheet. I accept there may be no typical project finance, but there are a lot of principles are shared in common ...
172 views

### Creating a doubling and halving position

I want to create a position that either multiplies with $1+u$ (outcome $U$) or $1-d$ (outcome $D$). The probability of $U$ is denoted by $P(U) = \pi$. The initial value of the position is $V_0$. Given ...
249 views

### What is Heston's equation?

This paper mentions the elliptic Heston operator: $Av:= -\frac y2(v_{xx}+2\rho\sigma v_{xy} + \sigma^2v_{yy}) - (c_0 - q - \frac y2)v_x + \kappa(\theta -y)v_y + c_0v$. Then boundary value problem ...
396 views

### Using alpha to evaluate trading strategy

I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha: $R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$ I compare my alpha against ...
526 views

### Equity option portfolio greeks with underlying

I'm curious about how to construct the five basic greeks for an equity option portfolio when there are shares of the underlying in the portfolio. For example, a portfolio of 100 call options and 100 ...
113 views

### Probability Density of Returns of Bonus Certificates

Could anyone please help me with the following? I need to generate a histogram (resp. probability density) of returns of a bonus-certificate. A bonus-certificate can be replicated by an underlying ...
375 views

### VaR for corporate bonds

I am trying to create a simple risk calculation for the portfolio (ignoring correlations for the moment). I have some corporate bonds with limited daily price changes. Any one have ideas how I can get ...
103 views

### How is a quanto priced?

How would one price a derivative denominated in EUR that pays in USD?
246 views

### Resources for performance statistics of trading systems

I'm looking for an online resource to study the usual performance statistics (CAGR, MaxDD, Payoff Ratio, Win/Loss Ratio, etc.) of trading systems, preferably trend-following systems. I know that ...
2k views

### Technology stack used in Bloomberg

I figure this perhaps the best place to ask this. What technology stack is used in Bloomberg? I'm C++ developer, and I definitely prefer C++ to C, so I don't want to touch C unless it's strictly ...
362 views

### Calculating the right portfolio(position size for each leg) in a Long/Short Strategy

For a Long/Short Strategy, I have two stocks with different volatilities. How can I calculate the right position size for each leg? *The pair trading is not coming from co-integration but more as a ...
88 views

### forward- and backward adjusting stockprices

Do you guys know if a paper has been published that discusses forward- and backward adjusted stockprices, and the look ahead bias coming from backward adjusted data?
610 views

### Forward Adjusting Stock Prices?

How should one correctly forward adjust historical prices given a time series of Open, High, Low, Close, Return? Suppose that the data series is given below ('1' is the oldest interval; '5' is the ...
326 views

### Data feed API that uses REST?

Is there a data feed provider that has a REST (http) API? Preferably real-time and historical, at least for US equities.
210 views

### Alternative liquidity measures

I'm going to write the MSc thesis on flight-to-liquidity phenomenon in stock markets and I'm interested in liquidity measures other than Amihud or bid-ask spread. What are some other popular measures ...
239 views

### How to calculate probability of touching a take-profit without touching a stop-loss?

How to calculate probability of touching a take-profit without touching a stop-loss (no-dividend stock, infinite time)?
322 views

### .NET statistical packages recommendation

What open source or commercial .NET statistical package would you guys recommend? I am doing statistical arbitrage in options. The functions I need mainly are regressions, optimizations..etc. It would ...
359 views

### Order and position management in (semi-)automated trading system

A simple and lazy approach to implementing an order and position management (OPM) component in a (semi-)automated trading system: leave most OPM to counter party (broker/exchange). Even then funds ...
507 views

### Does Interactive Brokers (IB) have a Web friendly API?

The requirement I am given is to implement a web ppplication which utilizes Interactive Brokers's API to fetch data. I went through the IB API web page and came across two viable methods: TWS and IB ...
488 views

### Statistical significance of trading systems that use indicators with long lookbacks

Let's say we have a trading system that trades daily, holding for one day, but uses an indicator that looks back over the last 5 years. A simple example could be the percent change in price of an ...
347 views

### Which objective function should I choose to minimize tracking error?

Let say I have $n$ assets and their returns over $m$ periods which are represented by a matrix $X \in \mathbb{R}^{m \times n}$, and I have some other asset with return over the same period which is ...
2k views

### What is an effective way of backtesting VWAP execution?

From Optimal Trading Strategies : There are two main reasons why traders execute orders using a VWAP trading strategy. First, a VWAP strategy is the trading strategy that minimizes market ...
498 views

### Evaluating forecasting algorithm

I am trying to evaluate a forecasting algorithm for stock price prediction. However, the performance of the algorithm may be very much tied to the trading strategy. Is there a systematic way for ...
262 views

### Risk neutral probability in binomial short rate model assumed to be 0.5?

This should be a basic question but I have not been able to find a satisfying explanation. In the simplest binomial model, the risk neutral probability is computed using the up/down magnitude and the ...
624 views

### Reference request: Survey article on GPU in Finance

I would like to get and idea of how people use GPUs in finance. I can find some specific papers or books on the subject. GPUs in binomial model, finite difference, monte carlo,... But I couldn't ...
569 views

### Credit Valuation Adjustments — computation issues

I'm currently working on my Masters project related to accelerating Greeks computations for CVA on mixed interest rate portfolios. I would like to know about the status of technology for CVA and its ...
703 views

### How to calculate optimal standard deviation bands for trading?

I am trading with standard deviation bands (6 bands) on de-trended data. How can I find the most profitable signals with neural network or GA with standard deviation bands? Should I first find the ...
209 views

### Construction of “vol of vol”

How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.
631 views

### How to transform process to risk-neutral measure for Monte Carlo option pricing?

I am trying to price an option using the Monte Carlo method, and I have the price process simulations as an inputs. The underlying is a forward contract, so at all times the mean of the simulations is ...
2k views

### Are two identical time series cointegrated?

I did cointegration test on two identical time series, and the result shows that they are not cointegrated, but intuitively, I think they are. Can anyone share some thoughts on this? Thanks!
341 views

### Major FX pairs - Pentahedron Data Structure

I read an interview today with Stephane Coquillaud. He talked about this idea of formulating a data set of the G5 currencies as a pentahedron. The obvious benefit is the fact that there is more ...
177 views

### Minimum variance hedge with more than one asset

My portfolio comprises of 3 assets A,B,C that are correlated and the variance-covariance structure is known. At any given point in time, my position in Asset A say is given to me. I need to ...
1k views

### Analyzing tick data

What are some of the commonly used techniques to analyze tick data? I am looking at tick data to see how the quotes/ mid-price evolves due to certain events in the market. Since tick data is ...
450 views

### Where do swap rates and/or long-term forward rates come from?

I apologize if this is supposed to be obvious, but ... . Libor spot rates are quoted up to a year, beyond that one can use Eurodollar futures to continue to build the curve. Let's say up to 3 years. ...
136 views

### How do I model risks for specific short-term short calls in a portfolio with limited data?

I'm trying to do some risk analysis on a portfolio of bonds, currency, stocks and short calls. The short calls expire in approximately 15-30 days and I've only got around 20 days of pricing data on ...
650 views

### Modelling with negative interest rates

For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
55 views

### Should portfolio be optimized by marking to the future than marking to market (excluding currencies)?

Observing the negative interest bonds in Switzerland, Denmark, GErmany the value of higher presently (credit-free) outgoing cash flows seems less important than the value of lower future (credit-free) ...
495 views

### How to show that this weak scheme is a cubature scheme?

Weak schemes, such as Ninomiya-Victoir or Ninomiya-Ninomiya, are typically used for discretization of stochastic volatility models such as the Heston Model. Can anyone familiar with Cubature on ...