2
votes
1answer
81 views

Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the ...
3
votes
4answers
2k views

Copulas simply explained

I try to understand the basic idea of copulas, however I am still struggling and hope that someone can help me. I understood that in general a copula is a function which links several marginal ...
1
vote
1answer
101 views

Function A(t,T) in one-factor Hull-White model

I am struggling with Hull-White model now and have the following question: in the lecture notes under the link below I see how A(t,T) and B(t,T) are being derived. This requires the solution of ...
0
votes
1answer
39 views

Creating the histogram for the distribution of the portfolio returns

Given log returns for some stocks $A$ and $B$, which are the constituents of our hypothetical portfolio in equal weights, how does one actually come up with a distribution of the log returns of the ...
11
votes
1answer
573 views

Alternative ways to understand time-varying comovement between two time-series?

I have been looking into ways to better understand how the dependencies/correlations/etc between two time series can vary over time. I first thought about using a Kalman/particle filter over a ...
6
votes
1answer
376 views

How to estimate CVA by valuing a CDS of the counterparty?

I'm trying to estimate CVA of one of my derivatives by valuing a credit default swap (CDS) of my counterparty. However, I don't know how to set up the CDS deal (notional amount, maturity, etc.). ...
1
vote
0answers
167 views
1
vote
0answers
50 views

Jabbour-Kramin-Young ABMC Binomial Parameterization

The JKY ABMC Model (taken from Jabbour, et al. 2001) parameterizes the binomial model (in a risk-neutral world) such that, $u = e^{r\Delta t} + e^{r\Delta t}\sqrt{e^{\sigma^2\Delta t} - 1}$ $d = ...
1
vote
2answers
167 views

Geometric brownian motion vs. Ornstein Uhlenbeck

I'm looking at the SDE of Geometric brownian motion(*): $$d X(t) = \sigma X(t) d B(t) + \mu X(t) d t$$ (with analytic solution $X(t) = X(0) e^{(\mu - \sigma^2 / 2) t + \sigma B(t)}$) and the SDE of ...
1
vote
1answer
56 views

Computing the expected stock growth rate

I need to compute the expected growth rate of a stock given the data: financial leverage 2.0 return on assets 16% dividend payout ratio 60% I don't know how to compute it nor where to start, could ...
1
vote
2answers
103 views

Question about the martingale property of stochastic integral

Let $W_{t}$ be a Wiener process, and let $$X_{t} = \int^{t}_{0}W_{\tau}d\tau$$ Is $X_{t}$ a martingale? We can rewrite in differential form as $$dX_{t} = W_{t}dt$$ ,which means $X_{t}$ is a diffusion ...
1
vote
1answer
26 views

binomial - parameters at which american option hits early exercise possibility

I am looking for a set of parameters (d,u,r,So,K, N=?) for pricing an american call using binomial where the call hits the early exercise possibility. Do you have any exemplary set?
1
vote
1answer
21 views

Calculating the price of a call and put using multinomial trees and risk-neutral probabilities

I am self-studying for an actuarial exam and I encountered this example. The books shows one method of solving using a replicating portfolio, and then shows this solution involving risk-neutral ...
15
votes
8answers
20k views

Is the Interactive Brokers API suitable for hft?

By HFT here I mean anything with holding period less than 5 to 10 minutes. Any empirical/anecdotal evidence of using it successfully on even higher frequencies?
0
votes
1answer
42 views

Valuing corporate EUR loan of US entity? Which discount rate to use? US or EU?

If a US entity borrows in EUR and I need to perform a DCF valuation on that borrowing, should I use USD based curve (for the appropriate rating) or EUR based curves? In other words do I use the ...
1
vote
1answer
91 views

How to get historical data for expired futures contracts in IbPy?

Does anyone know how to request historical data for futures contracts that have already expired in IbPy? There are plenty of examples for requesting historical data for example this post, however ...
0
votes
1answer
46 views

Pricing a vanilla call option with a fixed dividend

I have started a finance course few months ago and am looking for a way to compute the price of a 1-year call option with a fixed dividend paid after 6 months. Using Black and Scholes I know how to ...
2
votes
1answer
589 views

European Swaptions: does implied volatility of swap rates decreases both with start and tenor?

Does implied volatility of swap rates decreases both with start and tenor? Given a Swaption price and a discount curve I calculate the swap_rate from the curve, then I define implied volatility as ...
1
vote
1answer
110 views

How to calculate US treasury total return from yield?

I'm struggling to understand the meaning of US treasury total return. What is easily available to get is yield data. Yield can be directly translated to the bond price at that time. In other words, ...
1
vote
0answers
86 views

Market Making Literature

I am not sure if this is the correct site to ask this, if not I apologize. I have noticed some markets that lack in liquidity, and wonder why market makers in these markets cannot provide liquidity ...
0
votes
0answers
27 views

commodity asset pricing

This is not a quant question but more a fundamental question. At the moment, WTI next month’s contract is trading at $29/B. My question are: Is it safe to assume delivery cost at Cushing is priced ...
0
votes
0answers
26 views

consensus on Trading Costs in Empirical Papers

Is there some consensus in the literature to model trading costs when going short/long SPX options? Like 2% trading costs to switch from short to long and vice versa plus 20% (just an example) margin ...
0
votes
1answer
61 views

completeness of the binomial model - proof

I am reviewing the steps of proof that the binomial model is complete and don't understand the marked in red transition. Could anybody explain this step? If $P^{**}$ is a risk-neutral measure, so ...
0
votes
0answers
38 views

How to find multiple FED rate hike implied probability

I have some questions about finding implied probability of rate hike on FED Funds Futures: What is the relevance of a month that does not have meeting (e.g.: february 2016)? Does the probability ...
0
votes
0answers
63 views

proven implementation of Black scholes formula

We are writing our own implementation of the Back Scholes model. What on-line, well-known implementation do you recommend to test against? I have found several including the one below, but it doesn’t ...
0
votes
0answers
85 views

Altman Z-Score to Probability of default

I have computed the Altman Z Score for approximatly 2500 companies. I was wondering if mathematically I am allowed to use a logistic function ? Such as: ...
3
votes
2answers
130 views

Limits on Short selling

When back testing an algorithm that relies upon short selling certain stocks, how to limit the short selling so that the back-test results still remain reliable? What kind of controls are generally ...
3
votes
1answer
145 views

Cubic spline interpolation function within Matlab

I want to use the Cubic spline interpolation technique so I can interpolate yield curve points. Now I wonder if I can use the standard matlab function interpl1 (and then using the 'spline' method) or ...
35
votes
9answers
3k views

Lévy alpha-stable distribution and modelling of stock prices.

Since Mandelbrot, Fama and others have performed seminal work on the topic, it has been suspected that stock price fluctuations can be more appropriately modeled using Lévy alpha-stable distrbutions ...
0
votes
1answer
75 views

Leveraged ETF calculation - dropping below zero?

I'm running some simulations with a leveraged ETF to investigate that notorious leveraged-ETF decay effect I keep hearing about. When I put in a typical Black-Scholes lognormal model of returns on the ...
1
vote
0answers
67 views

Implementation of Kelly in multivariate case using modeled distributions

I am exploring how to determine an "optimal" portfolio in the context of real life data and systems. Specifically, I want to calculate a Kelly Optimal Portfolio (see this paper, especially section 8.4 ...
0
votes
1answer
67 views

Where to get price data on Credit Default Swaps?

I trust market-driven CDS more than credit ratings. Where can one get the CDS of corporate bonds of major companies? Are there any good internet links? If charts on the historical end-of-day prices ...
1
vote
2answers
53 views

Unrecovered debt

When reading an article about banking industry I came up with two questions. I'd be very pleased If somebody could clarify them: How concepts of unrecovered debt and NPL are related? When banks ...
1
vote
0answers
44 views

How are CDS prices calculated for financial institutions?

If you need to estimate the fair price of a credit default swap on a financial institution, can it be done? Typical structural models tend to break down for the complex debt and asset characteristics ...
3
votes
1answer
57 views

Pricing bonds of float coupon rate by stochastic interest rate

So I am not sure whether the following pricing of the bond is possible. Given the stochastic interest rate, one wants to price the bond with the floating coupon rate or the coupon rate being unknown. ...
2
votes
1answer
69 views

decompose correlation swap pnl

For a Variance swap we can split the pnl into a realized part and a "forward going" part. To be more precise: Assume we enter the trade at t0, and the variance swap has tenor T and a strike $Kvar$. ...
0
votes
1answer
29 views

Reshuffling the weighting of assets in an investment portfolio

An investor has a £40,000 portfolio, 40% of which is invested in bonds.The investor wishes to add funds to the portfolio by purchasing bonds so that 52% of the entire portfolio is invested in bonds. ...
1
vote
1answer
85 views

Reference request: Quantitative Trading Strategies [closed]

I intend to thoroughly prepare for an internship that I will start in a couple of months, and therefore wanted to clarify what topics I need to study and some recommended references for them. The ...
0
votes
0answers
49 views

Bond Convexity: Relationship between discrete and continuous interest rate

The interest rate risk of a bond price $P$ is measured by its Duration: $$D=-\frac{\frac{dP}{P}}{dr}$$ However, the explicit formula for the Duration given a function $P$ is different if $r$ is ...
2
votes
2answers
86 views

Is there an implementation of VAR-EGARCH model in R or Stata?

I am writing my undergrad honor thesis and want to run a multivariable VAR-EGARCH model. Is there any package in R or formulas in Stata 14 that allows me to implement directly? If not, could you ...
6
votes
5answers
5k views

Historical Level 2 Data (Market Depth)

I'm currently looking to hone a system using market depth however I am looking for a good source of historical level 2 data. As of right now the best source of historical I have found is automated ...
0
votes
0answers
28 views

polynomial time trend

I'm attempting to model historic operating margin data and to achieve stationarity I ran the ADF test with 4 lags (quarterly data) and first incorporating an intercept and time trend. The alpha was ...
13
votes
4answers
27k views

How to compute Implied Volatility Calculation?

We all know if you back out of the BS option pricing model you can derive and solve what the options is "implying" as its volatility. However, what is the formula used to derive Implied Volatility ...
2
votes
1answer
104 views

Determining maximum strategy capacity and optimal order size for low frequency equity strategy

I have developed a low frequency equity trading strategy that seems to work well with stocks in the S&P 500. Someone asked me about the maximum capacity of the strategy (how much AUM I could ...
0
votes
0answers
43 views

Leland's model of non-linear Black-Scholes equation

Leland's model of non-linear Black-Scholes equation: (http://i.stack.imgur.com/EkqQb.png) where с is round-trip transaction costs and S is price of stock. c is said to be constant, ...
1
vote
0answers
17 views

Optimizing Monte Carl integral calculation with control variate

For an exercise I am asked to calculate an integral with a monte carlo simulation, after that I need to optimize the results with a control variate. This was the given integral: $\int_0^1 \! ...
1
vote
1answer
57 views

Is there any package in R for conditional autoregressive range model (CARR)?

I am working on a project which requires volatility estimation using range based volatility. Is there any package in R which helps me in estimating the CARR model proposed by Chou (2005).
0
votes
0answers
51 views

Need to know What is not available in RQuantlib

If we explore CRAN RQuantlib package it says The 'RQuantLib' package makes parts of 'QuantLib' accessible from R. When I tried the package I have found vanilla/some exotic options, fixed income ...
0
votes
0answers
17 views

Monte Carlo - Inflated Asset Paths Due to Correlation

I built a MC generator for 12 assets based on Brownian Motion and noticed some strange results. Formula Used S(t) = Exp(S(t-1) + (mean - (vol. / 2)) + (stdev * Normal Distribution #)) S(0) = Ln(1) ...
1
vote
1answer
118 views

Rblpapi / bdh - how to download prices for all weekdays - regardless if it is a bank holiday

Using bdh(), I am trying to download historic weekday prices regardless if the weekday is a holiday or not. The default does not return weekday bank holidays. The ...

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