19
votes
5answers
3k views

Trading a synthetic replication of the VIX index

One cannot directly buy and sell the VIX index. Theoretically, however, one could approximate the index by purchasing an at-the-money straddle on the SP500, then delta-hedging the straddle. Does ...
4
votes
0answers
191 views

Algorithmic Trading Model Calculation and Stale Data

I'd like ask everyone a more concurrency programming but definitely quant-finance related question. How do you deal with staleness of data in market hours as quote ticks are streaming and your model ...
2
votes
1answer
164 views

Implied probability density (Question 2 - Applications and Interpretation)

Using the second derivative of the Call-Option-Price one can try to recover the pricing density. Formally: Assuming a constant interst rate $r$ and also not making any assumptions on the model ...
0
votes
0answers
48 views

Minimum PD under Basel II retail asset?

I have been told that under Basel II the minimum PD that one can assign to any portfolio/segment classified under the retail asset class is 0.33%. But Google searches return nothing and I can't seem ...
8
votes
3answers
591 views

Which greeks do you need to hedge if you want to implement an implied-volatility security?

Assume you want to create a security which replicates the implied volatility of the market, that is when $\sigma$ goes up, the value of the security $X$. The method you could use is to buy call ...
0
votes
2answers
131 views

Sharpe Ratio and time spent in loss

Is it possible to express, given an annualized Sharpe Ratio value, what is an expected maximum/average time spent in a draw-down or something in this manner? E.g. with SR of 10, you'd expect to spend ...
11
votes
4answers
325 views

How to prove that markets are incomplete under the Stochastic Volatility model?

Has anyone ever formally proved that Markets are incomplete under the stochastic volatility model? I know that if there are more random sources than traded assets, then the market is incomplete but ...
1
vote
1answer
112 views

Volatility tools / web sites?

Could someone give recommendations regarding volatility tools / web sites that they find useful? I am looking for information that my brokerage platform does not provide. Specifically, I want to see ...
1
vote
0answers
40 views

How do I determine what is a separate objective in a multi-objective portfolio optimization?

Is there a general rule to determining when to separate objectives when developing a multi-objective portfolio optimization? For example, one might start with a standard portfolio optimization of ...
0
votes
0answers
16 views

Cost dependency quantification

Suppose one wants to estimate the manufacturing costs dependence of the price of a specific raw commodity, are there good quantitative methods for making such estimation? I'm interested in creating a ...
1
vote
1answer
75 views

Pricing a piece of asset whose dividend stream following a Markovian matrix

I'm trying to calculate the result of an simple example on page 326-327, in Harrison and Kreps(1978). It's pricing a piece of asset whose dividend stream is a simple Markovian process. Here's my ...
3
votes
1answer
207 views

Optimal Executions for Minimizing Slippage

There has been a considerable body of work for finding trading strategies that minimize the slippage wrt arrival price. For instance, the following are on of the most well known papers: [1] Robert ...
1
vote
0answers
40 views

Econometrics - Granger Causality

Suppose we have two time series, if one has autocorrelations and the other is non stationary how do we test whether they Granger cause a returns series?
0
votes
0answers
139 views

Monte Carlo American Option Pricing under GARCH(1,1) volatitliy

I am attempting to price a couple of at-the-money American option using the LSM algorithm and GARCH(1,1) volatility. The LSM code I have works correctly for constant volatility, however, when I switch ...
10
votes
1answer
362 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 ...
3
votes
0answers
41 views

Is there evidence that illiquid stocks, held less by institutions, have more price momentum?

(One of) the standard explanation people gave for momentum is under-reaction of stockholders to firm-specific news. If this is true, then it seems that these stocks should have more momentum, and ...
1
vote
0answers
70 views

What is the algorithm for the Fama-Bliss instrument selection?

Fama-Bliss discount bonds are defined through a straight forward calculation (Famma, Bliss 1987). For the purposes of a project I need to derive forward rates, yields &c. for periods not included ...
0
votes
0answers
31 views

Tracking delistings on NASDAQ & NYSE

Does anyone know of a webpage (or webpages) of current delistings for NASDAQ & NYSE?
-2
votes
1answer
47 views

What does “percent of change” mean? [closed]

Whenever a price is changed, you can find the percent of increase or the percent of decrease by using the following formula: $$\frac{\text{percent of change}}{100}=\frac{\text{change in ...
0
votes
0answers
40 views

Compute the average efficient frontiers with estimated parameters from generated time series

My overall objective is to analyse the impact of error in mean-variance analysis from historical data. I am given the returns and standard deviation for the five assets under consideration, as well as ...
5
votes
1answer
308 views

Is Behavioral Finance relevant to quants?

This topic has been prompted by the following question: Measuring Behavioral Finance Effects in Fund/Portfolio Manager Analysis After reading it and the comments below I started thinking whether ...
2
votes
2answers
430 views

An alternative to the Gaussian distribution to describe/fit market stock returns

After the financial crisis in 2008, many people (including me) don't really believe that stock returns can be described in terms of the normal distribution (Gaussian distribution). But besides the ...
6
votes
0answers
272 views

Do intraday volume and volatility share the same properties?

volatility clustering and mean reversion are very well known properties that one could use when trading. Traders, especially in options world, do take realized vol into account (e.g. by forecasting it ...
1
vote
1answer
232 views

Implied state price density (Question 1 - derivation of the formula)

I came upon the term "implied state price density" in a couple of papers. As far as I understand the concept one basically tries to extract the "pricing density" from the market data. For the sake ...
0
votes
0answers
111 views

Fitting Egarch Model

I am performing a monte-carlo simulation in MATLAB for the first order EGARCH model in which case I am simulating 100 paths of size 500 assuming Gaussian and Student's-t distributions for the ...
3
votes
1answer
92 views

What's the underlying idea of definition of constrained market in Skiadas' Asset Pricing Theory?

I'm self-studying Skiadas' Asset Pricing Theory, and find the definition of constrained market on page 21 confusing(you can find it here in the sample chapter). Definition 1.26. A constrained ...
6
votes
3answers
6k views

Are public historical time series available for ratings of sovereign debt?

The nice list of free online data sources Data sources online does not mention any data from ratings agencies. Are historical time series available for sovereign credit ratings (other than as ...
2
votes
3answers
1k views

How is historical data for forex collected or computed?

I'm looking at four sources of forex data, as compiled in the question, What data sources are available online? And I think I must be misunderstanding something, perhaps something fundamental, but I'm ...
1
vote
0answers
124 views

The Public Market Equivalent measure in private equity

What are the advantages and disadvantages of the Public Market Equivalent measure in private equity? Why is it that the volatility of the cash flows do not matter? This topic has been discussed in a ...
0
votes
2answers
73 views

Wiener process proof

Can someone prove to me how $dW_t=W_t-W_s$, where $t=s+1$, the difference of the Wiener process eventually equates to $dW_t=z*(dt)^{(1/2)}$ where $z$ is standard normal, $N(0,1)$ in the following ...
2
votes
1answer
53 views

Attributing change in yield as a result of structural change

Suppose your portfolio has $w_0$ amount of bonds with yield $r_0$. Now you buy additional $w_1$ amount of bonds with yield $r_1$, then buy additional $w_2$ amount of bonds with yield $r_2$. ...
0
votes
0answers
61 views

Volatility Minimum Analysis for Trading

I have been back testing some algorithms against a low volume highly volatile stock. I've found that during low volatile periods the technical indicators are following noise more than real trends. ...
1
vote
1answer
397 views

What are DGTW adjusted returns?

Many papers, e.g. in The Journal of Finance, discuss DGTW adjusted returns (or DGTW abnormal returns) instead of just returns. What are these and how does one compute them?
0
votes
0answers
28 views

Approaches to check/validate the output of an optimization algorithm

Let's say we want to optimize the a function $f(x_1,\dots, x_n)$ with $(x_1, \dots , x_n) \in \mathbb{D}^n$. For the sake of simplicity let $\mathbb{D}^n$ be the unit sphere. We chose an optimization ...
3
votes
1answer
146 views

3 Factor HJM model, do these factors have an economic meaning?

In the HJM model, in case we have 3 factors, do these factors have an economic meaning at all ?
1
vote
2answers
758 views

Delta Neutral / Gamma Neutral Positions

I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ...
0
votes
0answers
31 views

measuring the performance of round-trips on stocks

can you provide me with some ideas to assess the profitability of round-trips? That is when I buy 100 shares of IBM at 10\$ and I resell them two days later at 11\$, how can I measure the profit made? ...
1
vote
0answers
134 views

regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
1
vote
1answer
55 views

What would be an alternative if the VaR model is not acceptable?

Assume we have a VaR model wich says : the lost should not exceed X for more 3 days and we come up with more days where the lost exceeded X, what is usually done for the VaR model ? Do we switch to ...
0
votes
1answer
119 views

How to backtest the VaR model?

I have a sorted historical P&L vector of 250 days and say, I want to calculate the 90% VaR on this distribution. I will look for the 225 element (90% * 250 = 225) and this will be my Value at ...
2
votes
0answers
95 views

Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
4
votes
1answer
565 views

Expected Shortfall (CVaR) Backtesting

I am writing my thesis on VaR and ES risk measurements and have encountered some issues with how to best test the accuracy of ES estimates. My understanding of the topic is that backtesting ES ...
12
votes
8answers
959 views

Measuring liquidity

While liquidity is one of the key figure of financial markets, It seems to be very difficult to measure. Volume is sometime used as a proxy but can sometimes be completly irrelevant. Could you point ...
2
votes
1answer
58 views

How come the existence of ARCH effect is not a violation of Random Walk Hypothesis 3?

An ARCH (autoregressive conditional heteroscedastic) (1) model is: $r_t=\mu +a_t$, where $a_t=$return residual, and $\mu$ is the drift of the stock return $a_t=\sigma_t\epsilon_t$, where ...
2
votes
1answer
268 views

Resources for performance statistics of trading systems

I'm looking for an online resource to study the usual performance statistics (CAGR, MaxDD, Payoff Ratio, Win/Loss Ratio, etc.) of trading systems, preferably trend-following systems. I know that ...
15
votes
3answers
1k views

What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...
0
votes
0answers
140 views

Copula Value At Risk

Let's suppose I have two asset in my portfolio. I want to compute Copula Value At Risk. Can you help me? This is the code I wrote: ...
0
votes
0answers
24 views

Gibson & Schwartz (1190) - Time series empirical properties and Stochastic Process assumed

Gibson and Scwhartz in their paper "Stochastic convenience yield and the pricing of oil contingent claims" assume a log normal process for the spot price. They later claim to justify this process ...
5
votes
1answer
792 views

Can the Heston model be shown to reduce to the original Black Scholes model if appropriate parameters are chosen?

Summary For Heston model parameters that render the variance process constant, the solution should revert to plain Black-Scholes. Closed from solutions to the Heston model don't seem to do this, even ...
0
votes
2answers
125 views

How to obtain specific information on FX trading systems?

I'm trying to compare trading venues using a quantitative product selection matrix (and eventually software vendors using a different matrix specifically for vendors), and I was wondering if anyone ...

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