3
votes
2answers
239 views

Pricing when arbitrage is possible through Negative Probabilities or something else

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
1
vote
0answers
38 views

Is the European call option delta an increasing function of the spot?

In the Black-Scholes' setting, the delta hedge ratio of a European call option is given by $N(d_1)$, which is an increasing function of the underlying equity spot $S_0$. Does this property hold ...
0
votes
0answers
13 views

Magnitude of Predictors on Logistic Regression

We are using logistic regression for calculating delinquency. We know what the major predictors are, but we don't know how to quantify the impact of each of the major predictors. We know how to rank ...
1
vote
1answer
40 views

Pricing of American Deriviatives

Reading the book by Andrea Pascucci "PDE and Martingale Method in Option Pricing" I am struggling with a very simple issue. Suppose we want to find the price of an American derivative $X$ in an ...
0
votes
1answer
63 views

Using Forward or Spot rates for NPV?

I have to calculate the NPV for Capital Budgeting in a project with annual cash flows discounted by a risk - free interest rates 1.Instead of using a constant interest rate, should it better to use ...
2
votes
0answers
30 views

How does the diameter of the spatial grid affects the solution of a Crank Nicholson algorithm?

this is my first question so I hope I express myself clearly. I'm trying to implement an Implicit and a Crank Nicolson algorithm for the generic PDE $\partial_\tau u(\tau,x)+a \partial_x^2 u(\tau,x) ...
0
votes
0answers
29 views

Inverse Laplace transform

I'm trying to compute the inverse Laplace transform of the function gam below ...
1
vote
1answer
38 views

Bid/ask and volumes from ITCH feed, what is the most efficient way to do this?

I am very green when it comes to programming. I am doing a market microstructure study where I need to investigate how certain stock characteristics affect their liquidity. I have Nasdaq OMX ITCH Feed ...
1
vote
1answer
98 views

Historical book value data for S&P 500

In Graham's Intelligent Investor, he calculates a metric Earning/book value. I would like to calculate the same ratio in modern times (1960-2015) but am having trouble finding this data. I have found ...
0
votes
2answers
55 views

Yield curve interpolation at (very) short horizons

I'm struggling to find much information about yield curve interpolation for sub-yearly horizons. Say, one-two months. It seems to be the area where the curvature is usually nontrivial, while after ...
1
vote
0answers
58 views

Portfolio Optimization with equal weight for assets selected

I have a data frame of bets, with 1 being a win and 0 being a loss. These bets are correlated so I cannot just pick the highest winning percentage. Goal is to get 2 optimizations, 1 for max sharpe ...
0
votes
0answers
35 views

Solving inequality constraint

I am trying to solve the following inequality constraint: Given time-series data for N stocks, I am trying to construct a portfolio weight vector to minimize the variance of the returns. the ...
0
votes
0answers
47 views

Probability of reversion for cointegrated variables

I ran a Johansen test to figure out the cointegrating relationship between two variables $x$ and $y$, forming the equation $z=ax+by$ using the eigenvectors. The values are computed using from time ...
0
votes
1answer
31 views

Calculating Volatility Parameter using Closing Prices [closed]

Say you have 3 closing prices... 101 100 102 How would one calculate the standard volatility parameter using these values? I am quite confused, it seems simple enough though.
0
votes
1answer
41 views

Motivation: Stochastic Interest rate model

what is a reason that someone might be interested in a stochastic-interest model such as the Chen model? Also can you provide me with a link to an easy to read motivational paper/part of a paper on ...
2
votes
1answer
99 views

Risk Manager must-know list

What are the products, concepts, and models a risk manager must know? I'm not looking for an exhaustive list, but rather a general list as the one in Paul & Dominic's Guide To Quant Careers: ...
3
votes
4answers
178 views

Calculate theoretical forward price of a stock

The current price of a stock is USD400 per share and it pays no dividends. Assuming a constant interest rate of 8% compounded quarterly, what is the stock's theoretical forward price for delivery in 9 ...
1
vote
1answer
46 views

How to change to risk neutral measure in a mean reversion process?

For example, in the Ornstein-Uhlenbeck process do I just replace the drift term with the risk free rate, like in the GBM case?
1
vote
2answers
105 views

Stochastic process theory question

*S follows a process $dS= mSdt + oSdz$ where m and o are constant. What is the probability followed by $ Y=(Se)^{(r-t)} $. If S follows a process $ dS= k (b-S) dt + oSdz $ where k, b, o are ...
2
votes
2answers
195 views

Forecast of volatility

What are the well known methods for forecasting (daily - weekly - monthly) volatility of a stock price? How about a bond price? Let's say I have in my disposition the price time series at a very high ...
1
vote
1answer
153 views

Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
0
votes
0answers
19 views

How Current are Google Finance & YQL Sock Information

When viewing a specific stocks information on Google Finance and Yahoo Finance- how old/current is the stock information (Price, offer, bid, etc)? I've heard some providers offer information that is ...
0
votes
1answer
42 views

Why is the forward rate used for the underlying in Black's model?

Why is the forward rate suitable for being used as the underlying in Black's model? Thanks
2
votes
2answers
84 views

$ \mathop{\mathbb{E^{}}}\left\lbrace 1_{S_T > K} \; S_T \right\rbrace $ ? Exp. of an indicator funct and a diffusion with non-proportional vol

How to compute $ \mathop{\mathbb{E^{}}}\left\lbrace 1_{S_T > K} \; S_T \right\rbrace $ ? where $ dS_t = S_t r dt + \sigma dW_t $ and $ 1_{S_T > K} $ is the indicator function being one when ...
2
votes
1answer
65 views

Estimating Carma(2,1) parameters (using yuima package)

I am very new to R, and particularly to the yuima package, so I was hoping someone would be able to help me. I have some data (daily prices) that I wish to fit to ...
0
votes
0answers
19 views

Question in the proof of “Optimization of conditional value-at-risk”

I'm reading the paper "Optimization of conditional value-at-risk" by Rockafellar and Uryasev. The state two theorems within the paper which are proven in the appendix. Let me introduce some notation ...
1
vote
1answer
38 views

Optimal Financing Mix: Cost of Capital Approach

According to Cost of Capital approach to optimal financing mix we can calculate Cost-of-Capital-minimizing $\frac{D}{E}$ ratio as follows: $\frac{D}{E}_{opt} = argmin_{\frac{D}{E}}WACC$, where ...
0
votes
0answers
21 views

Effect on variance of change of measure

My current understanding: (a) changing the probability measure of a diffusion process does not change the variance. (b) for a general stochastic process the variance may change. Please confirm whether ...
0
votes
0answers
34 views

BLS v2 API took 20+ minutes to publish data where is immediate data available?

First, I should state that I built a Java program that uses HTTP Components to keep in sync with server time for my broker. Once 7:29:59 comes around the program ...
4
votes
2answers
615 views

How many monte carlo runs do I need for pricing a Call?

I have to price several calls using Monte Carlo. Obviously, there is a huge tradeoff between the number of runs and the fair price of the call option. I know I can check how the approximation changes ...
2
votes
1answer
74 views

Brownian motion. Solve stoc. integral by using Ito's lemma

I want to show that following statement is true by using Ito's lemma to solve stochastic integrals: I define the functions in Ito's model: a()=0, b()= (2wt-2)^2. f(t)=Integrate[(2wt-2)^2] Then ...
5
votes
1answer
91 views

Realized variance in SVJJ (Heston with jumps) model

I am working with the stochastic volatility model with jumps in both the price and volatility dynamics, ie. the risk neutral dynamics are of the form: $\mathrm{d}V_t = \kappa(\theta - V_t)\mathrm{d}t ...
0
votes
0answers
29 views

Measuring strength of correlation for bivariate time series

In case of a bi-variate time series with both I(0) how do I measure the strength of co-relation. I am looking for measure similar to R-squared but ideal measure may not be one of the variants of ...
2
votes
0answers
46 views

When to use SV or a GARCH model

So i have been searching for this answer for a question if there is a rule or something that would say when to use GARCH type model or use an stochastic volatility model to predict the volatility of ...
0
votes
0answers
53 views

How to use genetic algorithms to optimize moving averages

I'm working on a school project that attempts to optimize moving averages using genetic algorithms. From what I understand about moving averages, it is an average over a certain length of time. To ...
0
votes
1answer
47 views

Factor model to Portfolio optimization

By using the Fama and MacBeth methodology, I have identified the significant factors that explain the returns of my stocks. Now, I want to build a portfolio and backtest it. For that, I am trying ...
0
votes
0answers
26 views

commodities index volatility

Suppose that the average one year implied at-the-money volatility of the sub sector indices making up the BCOM is at 20% and that the sub sectors are uncorrelated. Bearing in mind the effect of ...
5
votes
4answers
235 views

European Call Option Delta Upper Bound

For a pure equity process (with interest rate, dividend, etc., being zero) not necessarily the geometric Brownian motion, is the delta of a European call option always no higher than $1$? I am NOT ...
0
votes
0answers
35 views

What is the standard length for rolling correlation in financial time series?

I know this is highly subjective, but is there any theory behind choosing a window period for rolling correlations? If I do 1-day or 2-day rolling correlations between highly correlated positions, ...
1
vote
0answers
50 views

copulas and time series

Can anbody explain how Copulas are used to describe the dependency between, for example, the return on two different stocks? I understand how Copulas are the "glue" that binds the two marginals ...
0
votes
0answers
24 views

Why is preferred stock not always preferred

I was wondering why is it not the case that preferred stocks are not preferred to common stock? The reasoning is as follows: it seems that the disadvantage of holding preferred stocks is that one ...
0
votes
1answer
84 views
2
votes
1answer
36 views

Can the differential operator be removed to get the mean/variance of an Ito process?

If $X_t$ is an Ito process, such that: $dX_t = \mu(t, X_t)dt + \sigma(t, Xt)dW_t$ where $W_t$ is a standard brownian motion. Then we can say that: $E(dX_t) = \mu(t, X_t)dt$ and that $Var(dX_t) = ...
1
vote
1answer
40 views

Asymmetric Random Walk / Prove that $T:= \inf\{n: X_n = b\}$ is a $\{\mathscr F_n\}_{n \in \mathbb N}$-stopping time

Given random variables $Y_1, Y_2, ... \stackrel{iid}{\sim} P(Y_i = 1) = p = 1 - q = 1 - P(Y_i = -1)$ where $p > q$ in a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_n\}_{n \in ...
2
votes
3answers
204 views

Hedge Fund risk management on a daily basis

Since Hedge Funds/Fund of Funds report on a monthly basis usually within 10 days after the month end, monitoring and managing (hedging) potential risks is quite a difficult task. Having done some ...
1
vote
1answer
265 views

How to calculate daily risk free interest rates

I'm working on an assignment in which I need to calculate excess return for six stocks plus the S&P 500. I have computed daily logarithmic returns for every stock and for the market, I now need to ...
0
votes
0answers
63 views

BDT model calibration using swaptions

I am using the Black-Derman-Toy model in a binomial tree that lasts 5 years with time increments of 1/12 . I have to calibrate my model using swaptions but I don't know which maturity I should use. I ...
2
votes
1answer
56 views

Debugging Quantlib

I am trying to understand Quantlib's finite-difference pricer using Eclipse with GDB debugger. The code shown below prices an American put option using the Crank-Nicholson finite-difference scheme. ...
0
votes
0answers
20 views

Fixed Income Sec: development of UK bond markets relative to the stock market

I am asked to describe (school project in the course Fixed Income Securities) the development of the UK bond markets relative the UK stock market and I am not sure how to tackle it. I want to compare ...
3
votes
2answers
104 views

Asymmetric Random Walk / Prove that $E[T:= \inf\{n: X_n = b\}] < \infty$

Given random variables $Y_1, Y_2, ... \stackrel{iid}{\sim} P(Y_i = 1) = p = 1 - q = 1 - P(Y_i = -1)$ where $p > q$ in a filtered probability space $(\Omega, \mathscr F, \{\mathscr F_n\}_{n \in ...

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