# All Questions

147 views

### Forecasting problem with Geometric Brownian Motion in Wolfram Mathematica

I'm a full time undergraduate student from Peru, and I'm trying to use the Geometric Brownian Motion example used in the help section from Wolfram Mathematica in order to forecast future stock ...
5k views

### R: Fast and efficient way of running a multivariate regression across a (really) large panel (First pass of Fama MacBeth)

I am attempting to run a rolling multivariate regression (14 explanatory variables) across a panel of 5000 stocks: For each of the 5000 stocks, I run 284 regressions (by rolling over my sample ...
854 views

### From Fourier Transforms to Option Values

I am trying to understand how Fourier transforms & Characteristics functions can be used to calculate option values. However, I am having difficulty following the process that is used in several ...
8 views

### FInding the Delta in margin based on Pricing, Unit Types, Product Mix, and Sale Types

Is there a way to find the change in margin based on the the changes in pricing, unit types, product mix and sale types? Is there a standard formula we can use? We have tried ...
275 views

### Which is the better risk sensitive measure?

Consider the two following optimization problem 1) $$\min_{\theta} \ln E_{\theta}[ e^{X}]$$ 2) $$\min_{\theta} E_{\theta}[ X]$$ with the constraint $$Var_{\theta}[X] <c$$ Is it true that ...
122 views

### Buying OTM puts and then selling stock

What is to stop someone from first buying a bunch of OTM puts and then selling short enough stock to make the puts go up high enough to make a profit? Or conversely, buying OTM calls and then buying a ...
66 views

### Apply CAPM using returns on a foreign currency as the market returns

I want to analize Bitcoin returns using the CAPM. I was thinking if it makes sense to compare returns of (BTC/USD) against (EUR/USD), taking the latter as the market returns. However, since EUR is ...
78 views

### API that provides Zero Coupon Bond Yield Curves?

Would anyone know and API or Database where one could access Zero Coupon Bond Yield Curves? Also, is it wrong to use Coupon Paying Bonds Yield Curves and then zero-finding and then bootstrapping to ...
49 views

### Calculating Fees (Kane, Marcus, and Trippi)

Having read a chapter in Bodie, Kane and Marcus' Investment, I came across a formula I do not quite understand. It states that the percentage fee in excess of what an index fund would charge on active ...
285 views

### Cointegration Test: Residual is stationary but not random?

I am testing cointegration relationship on various pairs of stocks by this following these steps. Test for I(1) on a pair of stocks, says X and Y, using Dickey-Fuller test. If both time series are ...
16k views

### How useful is the genetic algorithm for financial market forecasting?

There is a large body of literature on the "success" of the application of evolutionary algorithms in general, and the genetic algorithm in particular, to the financial markets. However, I feel ...
77 views

### Higher expected value and same variance implies weak dominance?

In his book Risk and Asset Allocation, Meucci writes (last paragraph) Indeed, since all the indices of satisfaction $\mathcal{S}$ discussed in Chapter 5 are consistent with weak stochastic ...
38 views

### Black Scholes with Dilution

I've seen two ways to account for dilution when valuing a European option using Black Scholes. I'm not sure which is the correct way and why these methods differ. The two ways I've seen are: 1) ...
290 views

### Greeks: Why does my Monte Carlo give correct delta but incorrect gamma?

For a vanilla European call, my Monte Carlo method gives the right option price and delta but the wrong gamma. In particular, the value of gamma varies wildly each time I run the method. I estimate ...
203 views

15 views

### Measure difference between estimations and historic returns

For every day in a year, I have the return on an asset and the CAPM estimation for the return. I want to measure the average difference between the set of returns and set of estimations. So far, I ...
26 views

### Return volatility or Price Volatility [duplicate]

Which is a better method to calculate volatility - Price variance or return variace or is it subjective to the use of volatility figure?
23 views

### Analyst vs firm claims on beta and return

The excercise and it's solution: Sunshine Mutual Fund is boasting that its expected return is much higher than the market portfolio. While the expected return of Sunshine’s portfolio is 14%, the ...
279 views

### Why the difference between SPY and ^GSPC?

Look at SPY vs ^GSPC -- the difference seems bigger than can be explained by the ETF fees. Is it only because of SPY re-invests dividends quarterly or something else? Since ...
334 views

### Portfolios from Sorts

Some time ago Almgren and Chriss proposed a method for portfolio optimization based on sorting criteria such as $r_1 > r_2 >... > r_N$ instead of explicit expected returns: see portfolios ...
364 views

### FX Delta Conventions

I'm currently reading Iain Clark's book Foreign Exchange Option Pricing and I got stuck at one sentence in the beginning of Section 3.3 that I feel is important to understand. He writes: FX ...
5k 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 ...
95 views

### Covariance Matrix vs. Volatility Matrix

Consider a general multidimensional market model in which each of $m$ stocks is driven by $d$ Brownian motions (as in Shreve II, p. 226), viz.  dS_i/S_i = \alpha_i dt + \sum_{j=1}^d \sigma_{ij}dW_j, ...
75 views

### Tradeable => Satisfies pricing equation?

In Wilmott's third volume, on p. 857, he tries giving an insight into the market price of risk by showing what it is for traded assets. For this he constructs a portfolio of two different options: ...
76 views

### What is the distribution assumption of the black scholes model

As per wikipedia the Black Scholes assumption is: (...
647 views

### What is a standard credit default swap contract and where can I find spread data? What alternatives exist to judge creditworthiness?

I'm doing some work for a company and one of my tasks is to research credit default swaps on banks and to write a page about them explaining what they are and how they're used to evaluate the banks' ...
59 views

### Why is “Deferred revenue” a non-monetary liability?

Why is "Deferred revenue" treated as a non-monetary liability during temporal method FX translation while "Accrued Expenses" is treated as a monetary liability?
29 views

### Residuals in the Ljung box test

does anybody know what type of residuals is used in the Ljung box test in R? raw or standardized? Because basically when I fit a GARCH model using garchFit, the summary() function gives me all the ...
37 views

### What is the borne function mentioned in this paper?

On page 16, first paragraph of this paper, the authors introduce a function called "borne", which divides the normal distribution into n ranges of equal size, without citation. The definition is clear ...
105 views

### Zero rate vs. yield on coupon bearing bond

in Hull's solutions manual of Options, Futures & Derivatives (8th edition), there's question 4.7, in which is asked to put the following in descending order: a) the five-year zero rate, b) the ...
141 views

### Corporate finance exercise book

I'm preparing a corporate finance exam and I need a book with illustrated exercises that make you really understand the subject, since the written exam is not much mechanical, but more similar to ...
104 views

### Modern portfolio theory in practice

I am wondering about the Markowitz theory of portfolio construction in practice. Hence, if one wants to know the efficient frontier, what variances can one use. The only method that I can think is the ...
34 views

### European option and American option are equivalent in this case?

This is Question No.11 from 2007 May MFE Exam. For a two-period binomial model for stock prices, you are given: (1) Each period is 6 months. (2) The current price for a nondividend ...
46 views

### How do I interpret yield curve data points given by the US Treasury?

Given the Daily US Treasury Yield Curve Rates for a specific date I will fit the curve with the cubic spline method, but first I need to know how to use the data points given by the Treasury. For ...
160 views

### Compute cross-gamma

I am trying to use delta-gamma method with montecarlo simulations to calculate the VAR of a portfolio consisting in options and equities. To use the method I need to compute a gamma matrix, that has ...
189 views

### On learning the bayesian approach to portfolio optimization

I am required by my course to write a small paper on the Bayesian approach to portfolio optimization, I am following Applied statistical decision theory [by] Raiffa, Howard. Which can be consulted ...
227 views

### New ways of communicating risk

One of the scapegoats of the financial crisis was value at risk. Still communicating risks effectively to clients is a big challenge and hugely important (also to keep your job as a quant!) In this ...
49 views

### Bayes Stein Porfolio Implementation

From this paper from Jorion. Has anyone implemented this? How is the Covariance matrix estimated? It needs to estimate also the conditional distribution of the returns? Best
64k views

### How can I go about applying machine learning algorithms to stock markets?

I am not very sure, if this question fits in here. I have recently begun, reading and learning about machine learning. Can someone throw some light onto how to go about it or rather can anyone share ...
51 views

### importing columns of returns data into python from excel/csv [closed]

I'm fairly new to the quant finance space, and I was hoping to get some guidance. Say I have a csv/excel file with columns of daily returns data for various asset classes or securities (one column per ...
62 views

### Difference between Tick data and NASDAQ ITCH VIEW [closed]

Could any one explain the difference
117 views

### Delta and gamma neutral

A financial institution currently has a portfolio with delta of 450 and gamma of 6,000. A traded option is available with a delta of 0.6 and a gamma of 1.5. How could the portfolio be made both delta ...
825 views

### Free data on swap options

I am trying to analyze valuation methods for swaptions. Does anyone know of free example data for these OTC-traded securities?
I'm having troubles with this proof: Let $\{Z_i\}_{i\in\mathbb{Z}}$ be i.i.d. random variables with zero mean and unit standard deviation. For $(a_0, a_1, ..., a_r)$ a sequence of $r$ real numbers ...