0
votes
0answers
208 views

Volatility of a rolling window strategy

What methods can be applied to determine the volatility of strategy using a rolling window? Using normal standard deviation would bias the results as the returns will be highly correlated. Although, ...
2
votes
1answer
215 views

How to measure contango?

Is there any unit of measure for the magnitude of the contango (or backwardation) for futures, so you can compare the contango of many symbols.
2
votes
0answers
62 views

Is there an appropriate sequence to tests during model diagnosis?

How should one order (sequence) the following tests? Stationarity test Johansen cointegration test Normality/Histogram test Autocorrelation test Heteroskedasticity test Multicollinearity test ...
1
vote
0answers
77 views

How to measure if variance is greater at a certain time of day?

I'm not very fluent in the quant vernacular, so perhaps the nature of my question will be better illustrated as a hypothesis. One market has closed and another market elsewhere on Spaceship Earth is ...
1
vote
1answer
114 views

How does one use the Johansen cointegration test in a linear time series model?

How does one use the Johansen cointegration test in a linear time series model? Should I only use normalized coeffients for interpretation? Or, once I know that the variables are cointegrated, do I ...
0
votes
1answer
420 views

S&P 500 P/E percentile

I am researching the past five year return for the securities in the top and bottom 10 percentile of the S&P 500 on date 5 years ago. I used Bloomberg to get this data. When I searched for the ...
2
votes
2answers
162 views

How to synchronize put and call option-data?

I recently retrieved a large amount of European option data, for call and put prices, from OptionMetrics. Doing so for the same time period I get a file consisting of 62558 rows of call prices & ...
2
votes
1answer
549 views

What exactly is an ISO order?

I have been looking this up and I feel like I keep running into different definitions. My understanding is that an ISO order is one which will get filled with the displayed quantity in a particular ...
2
votes
2answers
562 views

Calculating Geometric mean

I need to annualize daily returns for about 120 firms for over a period of 10 years. I chose to calculate the geometric return because 1) it is the actual return 2) to avoid the asymmetric effect of ...
2
votes
0answers
169 views

How replicate data using PCA

I have a set of date covering petrol prices. My example has two columns where each row represents a sequential date. ...
3
votes
2answers
245 views

Transformation to reduce standard deviation without changing median

Consider some negative skew and high kurtosis return time-series $X_t$. I do not know the functional form of the pdf of $X_t$ and have about 150,000 data points. Suppose that I was to create an ...
2
votes
1answer
118 views

Hedging differences between equity and index options?

Suppose we hedge an index option using futures on that index. How would the hedging strategy be different if the underlying could be traded directly (from a risk point of view)?
0
votes
1answer
147 views

help me compare methods to compute one instrument price from another instrument price

Assume we have two instruments A and B. Also time is increasing from 1 to n. Let's say that ...
2
votes
0answers
290 views

How does Hanson's Market Maker (LMSR) work?

Implementing Hanson's Market Maker states: If the market maker wants to quote a "current price", he can. The current price for outcome 1 is: $$ \mbox{price1} = ...
1
vote
1answer
290 views

How is the MESA sine wave calculated?

I've found many, many sites which describe what the MESA sine wave looks like and how to interpret it. But I have yet to find any site that describes the actual formula used to calculate the sine ...
5
votes
1answer
2k views

How to simulate correlated Geometric brownian motion for n assets?

So I'm trying to simulate currency movements for several currencies with a given correlation matrix. I have the initial price, drift and volatility for each of the separate currencies, and I want to ...
0
votes
0answers
68 views

Mean-variance minimizser

I am working on a project that involves pricing european call options in incomplete markets. Now I need to find a unique measure $Q^*$ such that $$Q^* = \min_{M_e} E_Q [V(T)-F(w)]^2 = \min_{u} E_Q ...
5
votes
1answer
1k views

Longstaff-Schwartz (Least Squares Monte Carlo) applied to American Options

I'm working on an implementation in R of Longstaff & Schwartz method from the this 2001 article. I've managed to build code that replicates their prices in table 1 (p. 127), but only for the ones ...
2
votes
2answers
623 views

How to calculate Vomma of Black Scholes model

This source (PDF) gives the closed-form for vomma (or volga, i.e. the second derivative of price w.r.t. volatility) of the Black Scholes option pricing model as: ...
2
votes
0answers
83 views

Industry factors without GICS

I'm working through the Quantitative Equity Portfolio Management book by Chincarini and Kim. I'd like to build a basic industry-based fundamental factor model. As this is a pet project for ...
1
vote
0answers
496 views

portfolio optimization with a loop

I am attempting to minimize the variance of a 3 stock portfolio using optimization within a loop. What I have done is calculated the stock returns and cov matrix from dates 1980-01-01 to 1989-12-31 ...
0
votes
0answers
64 views

How to Maximise Efficiency With hp12c gold calculator

I would like to calculate the net present value of a loan schedule or an equation of value. e.g. "For an investor receives R1 000 after 2 years, R2 000 after 5 years and R4000 after 7 years, how much ...
11
votes
2answers
584 views

Can you replicate an option on an arbitrary basket of stocks?

Since a market index is nothing more than a basket of stocks, you can create your own index by putting together stocks of your choice. The only difference is that you can trade options on major ...
3
votes
1answer
103 views

Can Central Index Keys (CIKs) issued by the SEC be reassigned?

Suppose company A has CIK 0000012345 and ceases to exist. At some later time, company B registers with the SEC to submit filings. Is it possible that company B will be assigned the same CIK ...
3
votes
2answers
484 views

Fitting distributions to financial data using volatility model to estimate VaR

I want to fit a distribution to my financial data using a volatility model to estimate the VaR. So in case of a normal distribution, this would be very easy, I assume the returns to follow a normal ...
0
votes
1answer
3k views

Calculating spot rate of interest

You are given the following information regarding the domestic government fixed-interest bond market: The current price of a one-year bond paying coupons at a rate of $4.5$% per annum and redeemed ...
3
votes
1answer
148 views

Foward-start option pricing

Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and is generated by $1 d $- ...
4
votes
1answer
1k views

Call option arbitrage opportunity

I am having trouble wrapping my head around some text provided to us by our lecturer (unfortunately he is currently unavailable). If we let $c$ be the price of a European call option, $S_0$ the ...
5
votes
3answers
5k views

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 IV (can anyone direct ...
2
votes
1answer
226 views

Using cointegration to prove that a long-short strategy is market neutral (in CAPM sense)

I am trying to prove that a long-short strategy invested according to the cointegrated relationship from Engle-Granger's. So essentially I'm trying to show that the return $r_{XY}$ of the portfolio (X ...
2
votes
1answer
108 views

How are option expiration dates decided?

I looked at the CBOE website and they say the expiration is the Saturday following the third Friday of each month. However, I look up an options chain for Google, for example, and I see three ...
3
votes
0answers
178 views

PCA Variances and Principal Portfolio Variances

In Meucci's paper called "Managing Diversification" he mentions that: "Indeed, the eigenvalues A correspond to the variances of these uncorrelated portfolios" I tried to replicate it but found they ...
3
votes
2answers
278 views

How do you know if if an option is priced correctly?

Besides obvious extreme examples (ie volatility going to infinity, infinite time, zero time, or zero volatility, deep OTM/ITM ) how does one gauge if an option is 'correct' or at least in the ...
1
vote
1answer
121 views

Greeks of Basket

I am considering a product composed of 10 underlying assets. The maturity is 5 year. Each year if the performance of the equi-weighted portfolio reach a barrier, it pays a coupon. My question concern ...
8
votes
1answer
595 views

Quantitative before/after or financial engineering studies of a bid or ask tax?

Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data? If so, what were the quantitative results or ...
2
votes
0answers
361 views

How to correctly construct a value- and equally weighted portfolio consisting of property-types?

A problem of which I couldn’t find the answer on the forum is about the construction of equally-weighted and value-weighted portfolio. I want to compute the equally-weighted property-type portfolio ...
2
votes
0answers
89 views

Benchmarking risk

Given the portfolio return $R$ and the benchmark return $B$, I want to define a risk indicator, measuring the ability to beat the benchmark ($R>B$), given the downside risk taken; the latter not ...
3
votes
1answer
2k views

t-statistics for the mean return, using Newey-West standard errors

I have seen that in several papers, where the aim was to evaluate the performance of a certain investment strategy, they use t-statistics to test for significance in the results. However, this seems a ...
1
vote
1answer
277 views

How to download risk free rate?

I've been trying to download the national interest rates for some countries. When i use Datastream, it only gives me the currency return (while i need yield). Can someone please tell how to ...
4
votes
2answers
457 views

How do I determine the maturity date from a T-bill's CUSIP?

Is there a way to determine a government bill's or bond's maturity date by looking at its CUSIP? For example, the CUSIP for US T-Bills with a maturity of 12/1/11 is 9127953V1. As you probably know, ...
4
votes
1answer
181 views

Ito's Lemma - Integrand depends on upper limit of integration

A problem I came across while practicing using Ito's Lemma had a process with an integral whose integrand depends on the upper limit of integration (the goal is to find $dZ_{t}$): ...
2
votes
0answers
91 views

What does negative gamma mean in APGARCH model?

I got a gamma of -0.1321677. ...
1
vote
2answers
142 views

Statistics of difference between two GBMs

if I have two asset prices modeled separately as geometric brownian motions. How do i go about calculating the expected statistics of their difference? Like given the sigmas and mus of both processes, ...
1
vote
0answers
118 views

Modelling long run relationship between dividend and earnings

I am working on a paper where I have to model the long run relationship between earnings and dividends. I have downloaded the raw data from shillers website. I have converted the series to ...
14
votes
5answers
6k views

Python library for Portfolio Optimization

Does anyone know of a python library/source that is able to calculate the traditional mean-variance portfolio? To press my luck, any resources where the library/source also contains functions such as ...
2
votes
1answer
469 views

Get intraday data of SAP with google Finance

According to this link I try to get intraday data of SAP listed at Xetra. Intraday data with timestep of 1 second would be great. I do not understand parts of the command, I try ...
3
votes
1answer
172 views

Auto-correlation of GBM

The GBM is defined by $ dS(t) = \mu S(t)dt + \sigma S(t) dW_t, $ with analytical solution $ S(t^\prime) = S(t) ...
1
vote
1answer
121 views

How to deal with different amount of td's in computing Sharpe Ratio

In calculating the Sharpe Ratio, should I take into account the days were I have 0 return due to non-trading day? Another user posted a similar question but this was related to trading days with no ...
3
votes
2answers
182 views

Iterating through every path of a Trinomial Tree

I am attempting to come up with an algorithm to iterate through every possible path of a trinomial tree and am having difficulties coming up with one. Is there any literature on this or has anyone ...
6
votes
10answers
2k views

Using Black-Scholes equations to “buy” stocks

From what I understand, Black-Scholes equation in finance is used to price options which are a contract between a potential buyer and a seller. Can I use this mathematical framework to "buy" a stock? ...

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