0
votes
0answers
104 views

The basic principle of the construction a portfolio of options

I have a question like this. Assume today's date is 9 January 2016 and XYZ's share price stands at $10. On 8 November 2016 there is a Presidential election and you believe that depending on who is ...
3
votes
0answers
228 views

pairs trading detrend the spread

I have calculated a hedge ratio that generates a mean reverting spread (stationary, without trends) 60-70% of the time. But the remaining 30% of the time, it seems like there is a trend in the spread. ...
3
votes
1answer
429 views

How to sum interest rate curves in QuantLib

C++ code taken from Bonds.cpp and slightly amended: ...
3
votes
0answers
62 views

LSM American Option pricing with dividends

Under the Longstaff-Schwartz LSM method for an American call, how should I account for a continuous dividend paying stock? I assume that it'll needs to be accounted for when simulating the underlying ...
7
votes
1answer
374 views

How to compute the Radon-Nikodym derivative?

Suppose $B(t)$ is a standard Brownian motion, and $B_{1}(t)$ is given by $dB_{1}(t)=\mu dt+dB(t)$. Suppose $P$ is the Wiener measure induced by $B(t)$ on the $C[0,\infty)$, and $P_{1}$ is the Law ...
2
votes
1answer
112 views

What happens at market open when there is a reverse spread during preopen?

During pre-open When checking the depth of one particularly bullish stock I am following (NZE:XRO went up 200% this year and 12% yesterday) I saw that the BUYs were much higher than the ASKs by about ...
4
votes
5answers
490 views

Consensus on Cauchy distribution for stock prices

What is the general consensus for using a Cauchy distribution to model stock prices? I can't find much after researching online and wonder if it has been tried and discarded. My motivation is to find ...
0
votes
1answer
170 views

Quantitative finance mentality for success [closed]

I have a strong statistical background (particularly in Time Series analysis) and previously have spent a lot of time modelling sports, Baseball in particular. After reading "Analysis of Financial ...
3
votes
0answers
114 views

What is the stochastic differential of a general semimartingale?

By using the canonical representation of a semimartingale in Eberlein, Glau and Papapantoleon's "Analysis of Fourier Transform Valuation Formulas and Applications", on page 3: $$H = B + H^c + h(x) ...
1
vote
1answer
194 views

Risks of issuing an Autocallable Note

Let's say that I'm issuing an Autocallable Note with the following features: Underlying: FTSE 100 Autocall Observation Frequency: Annual Observation Autocall Level: 100% of Initial Level of FTSE ...
0
votes
1answer
197 views

Is the risk-reward ratio considered in Quantitative Finance?

Many discretionary traders swear by risk-reward ratio, as in "The minimum risk-reward ratio for a Forex trade is 1:2." Do quantative traders use risk-to-reward ratio as well? If so, how do you ...
1
vote
1answer
110 views

How to value VIX Option?

Could someone tell me a common method for pricing VIX Options please? Do I need to use a Stochastic Vol Model? Or Local Vol Model is suitable as well? Should the model be modelling S&P 500 and ...
2
votes
0answers
190 views

How to properly take averages to reduce data in regression/panel data analysis

I'm trying to do a regression on my panel data. Say I have T=3500 days of data and N=125 firms. Since Matlab get's major memory issues (which I try to prevent by the usual solutions as seen on the ...
3
votes
1answer
156 views

Trouble arriving at Black-Scholes Formula

I am attempting to arrive at the Black-Scholes formula for my own understanding. I can accept one can use the risk-free distribution & rate, so I am attempting to use the distrution to arrive at ...
0
votes
0answers
51 views

why does graphic of log differenced of renminbi look similar to hkd?

this is CNY to US$ this is HKD to US$ while below are the log differenced of both graph above you can see tha apparent similarity on the mid of graph i thought that they were managed by ...
0
votes
1answer
305 views

Risk-free investment strategy for european call and put option

I have some trouble solving the following question: We have an european call and put option (with the same maturity date $T$ en strike $E=10$). The stock price now is $S=11$ and we use a continuous ...
5
votes
0answers
992 views

Algorithm to fit AR(1)/GARCH(1,1) model of log-returns

I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns, $r_t=\log(P_t/P_{t-1})$, where $P_t$ is the price at time $t$, and thus far am not clear on where the observed log ...
1
vote
0answers
161 views

For pricing, what types of Exotic Options are suitable using Local Volatility Model / Stochastic Volatility Model?

I understand that Stochastic Vol Models should be used when Exotic Option payoff is Volatility dependent (such as Variance Swaps and Volatility Swaps). Stochastic Vol Models should also be used when ...
2
votes
2answers
335 views

Black-Scholes: Why the focus on volatility?

We know Black-Scholes is an imperfect model for options pricing. Why is so much of the analysis of its defects focused on implied volatility? The fact that IV varies for the same stock at the same ...
0
votes
1answer
84 views

Implementing Orders with Interval Estimates

There's a better chance that stock price reaches an interval, say between \$16.91 and \$16.97, then a single price, say \$16.95. Hence, I generate an interval for a target price, instead of a single ...
0
votes
0answers
127 views

Question on Barrier Option and Skew

If you bought an Equity Call Option with a Down-and-In Barrier, are you Long Skew or Short Skew? Please provide explanation as well. Thanks.
1
vote
0answers
232 views

pairs trading or long short strategy given volatility of the stocks

Suppose I have 2 stocks and the only thing I know about them is their volatility and that they cointegrate. Let's say vol of stock A is 25% and B is 20%. Will I be able to find a hedge ratio only ...
0
votes
0answers
161 views

EOD Options data provider - optiondata.net

Does anyone have any experience with optiondata.net as data provider for EOD options data? How would they be compared to historicaloptiondata.com?
10
votes
1answer
323 views

Intuitive explanation of the Hansen-Jagannathan bound

The Hansen-Jagannathan bound states that the maximum Sharpe ratio of a portfolio can't exceed the ratio of the standard deviation of a stochastic discount factor to its mean. I more or less understand ...
-1
votes
1answer
98 views

Rate of Return Required on Buying Stocks with Loan

A bank gives a loan $L$ for $m$ months and the monthly interest rate is $i$. The bank requires monthly installments - which I calculate is $I = \frac{L}{m} + Li$. I use this loan to buy ...
0
votes
1answer
198 views

How to construct the binomial model for European option?

The annual interest rate is 5.3% and the annualized volatility of a non-dividend paying stock over the next six months will be 12.5% (annualized). i) Construct binomial trees of 5, 10 and 30 periods ...
2
votes
1answer
1k views

IMM rolls: Are there special business day conventions?

If a trade (lets say for example a 'simple' interest rate swap) is using IMM rolls (so the interest calculation periods start and end on IMM Wed dates), are there particular/special business day ...
4
votes
1answer
100 views

tail correlation during crisis

I am seeking a recommendation for an empirical paper on increased correlations of returns during the 2008 financial crisis, or 'tail correlation' during the crisis, if that is different, or whatever ...
0
votes
0answers
18 views

historical data for uk unit trusts? [duplicate]

Does anyone know of a free source of historical price data for UK based Unit Trusts and OEICs? At present, I know that Bloomberg has it but charges £1.5k per month. Morningstar is around £6k per ...
0
votes
1answer
290 views

Relationship in Order Book between S&P500 and S&P500 Futures Contracts [duplicate]

What is the relationship between E-mini SPX futures and the SPX index. Besides the obvious, one is cash the other is a futures product. How does buying/selling in one product influence the other. If ...
0
votes
1answer
78 views

Difference between Ibovespa full and mini futures contract

What is the difference between the following two Brazilian futures contracts: The Ibovespa Futures Contract The Mini Ibovespa Futures Contract As far as I can tell, both are priced in Brazilian ...
15
votes
3answers
2k views

Machine Learning vs Regression and/or Why still use the latter?

I come from a different field (Machine learning/AI/data science), but aim to ask a philosophical question with the utmost respect: Why do quantitative financial analysts (analysts/traders/etc.) prefer ...
0
votes
4answers
491 views

compute sharpe ratio for options?

Calculating sharpe ratio for shares is a straight forward task: (average returns - risk free ) / standard deviation. However i remain baffled as to how to tackle the task for options, can someone ...
3
votes
0answers
148 views

Credit Rating vs Bond Yield

I am looking for some references on quantifying the dependence between credit rating and bond yield. I have some data (found some Bloomberg indices which give average yield based on credit rating), ...
0
votes
1answer
268 views

Determine state price vectors?

I have 3 states with two assets, stocks and bonds. The bond has a payoff of 1 in every state of the world. And the stock has a current price of $S_0 = 100$ and ...
3
votes
2answers
216 views

FIX/FAST packet analyzer

I have a network dump of market data in the FIX/FAST format (transported over UDP). Are there standard pieces of software (similar to Wireshark) that will parse and allow for inspection of the ...
3
votes
2answers
295 views

How to compare volatility models?

What are the most popular ways to compare volatility models? Suppose I wanted to compare the forecasting accuracy of a GARCH(1,1) model with the historic 30 day volatility. What method should I use? ...
0
votes
1answer
188 views

Calculating Greeks in Covered Calls?

Just want to confirm whether Delta, Gamma, Theta, Vega will be calculated in the following way? Since we own 100 shares of stock while selling a call we need to subtract greek value from one? right? ...
3
votes
1answer
394 views

How to Analyze Interbank Lending Market?

I am currently trying to do a study in the interbank lending market, i plan to fit a DCC model to model them, these series below is taken from ...
0
votes
0answers
201 views

How to think about dollar volume in Eurodollar futures?

This is a very basic question: Computing the notional volume for futures contracts usually consists of something like: $V_F = N * P * M * FX$ Where $V_F$ is the dollar volume of the futures ...
2
votes
1answer
166 views

put-call parity equation

I'm reading this book and I'm looking at page 4, and we are considering the case where $C_t - P_t - S_t$ is negative, which means that selling the call did not offset the cost of the stock and the put ...
0
votes
0answers
16 views

Where to find, d/l specific (OCC) historical Option data beyond the free 2 years [duplicate]

The OCC www.optionsclearing.com/‎ provides a nice breakdown for CBOE options data, however they only go back 2 years on any given day. Is there a good not-too-high-cost database one can recommend for ...
1
vote
4answers
2k views

C# Broker API for FX Trading

I am looking for a broker who provides a free trading API for FX. The goal is to develop at-home algorithms in C# (possibly Qt) to run on a fake portfolio, and then later on real money with ...
1
vote
1answer
97 views

Greeks of self-financing portfolio

I would like to learn more about the Greeks of portfolios of options: In textbooks and websites, I commonly encounter the unqualified claim that "The Greek measure of a portfolio is the sum of the ...
-1
votes
1answer
218 views

What is a resting limit order? [closed]

What exactly is a resting limit order? I could not find a definition on Wikipedia or Google.
1
vote
2answers
386 views

Market making: buy on bid/sell on ask [closed]

In this thread, the top answer discusses: "buy on bid, sell on ask" as "market making" strategies. My question is: In layman ...
1
vote
0answers
212 views

Comparing Backtests of Value-at-Risk and Expected Shortfall

My goal is to test if ES (CVaR) empirically is a better risk measure than VaR for a set of given variables (assumed underlying distribution, confidence level, sample size) for different asset classes. ...
-2
votes
1answer
247 views

How could HFT help increase liquidity? [duplicate]

I have ready in several websites that HFT can help increase market liquidity, although this is contested in some articles. I am not familiar with the concept of market liquidity. What is the basis of ...
2
votes
4answers
2k views

Risk Neutral Probability

I read that an option prices is the expected value of the payout under the risk neutral probability. Intuitively why is the expectation taken with respect to risk neutral as opposed to the actual ...
1
vote
1answer
61 views

What are the CMG-relevant banks according to Basel III?

I'm going through Basel III monitoring workbook and instruction. There's one row in "General Info -> A) General Bank Data -> 1) Reporting Data" part: "CMG-relevant: Yes/No?" I wonder what does this ...

15 30 50 per page