All Questions

2
votes
1answer
118 views

Best practice approach for calculating the PE-ratio

I am trying to calculate the historical PE ratios of a stock, but which date should I use to get the stock price in calculating the PE ratio? My current approach is to use the stock price of a day ...
0
votes
0answers
91 views

How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
0
votes
0answers
74 views

Modeling the Option Volatility Skew

The volatility skew often changes based on multiple factors, such as moneyness of the option, time to expiration, movement in the underlying instrument, etc.. How does one best model the skew? Is ...
2
votes
0answers
48 views

Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
0
votes
1answer
466 views

Asset-or-nothing Option Valuation in the Black and Scholes model

In standard Black-Scholes Model, compute the price of an asset-or-nothing put and asset-or-nothing call options. Write down the put-call parity relation between the asset-or-nothing call and put ...
4
votes
1answer
192 views

Background required for the book by Brigo and Mercurio

My aim is to be able to read and understand almost all of the book by Brigo and Mercurio including HJM, LMM and the Local Vol models. So that I am able to implement these models on my own. My ...
2
votes
0answers
58 views

The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
3
votes
2answers
119 views

Effect of interest rate on options prices

This might be another basic derivatives question. When interest rate rises, stock prices generally fall. Assuming an option's underlying is a stock, this should lower the option's price as well. ...
1
vote
2answers
289 views

Bloomberg Alternative for Quant Fund

Is there an alternative to Bloomberg for someone who only needs historical data (stocks, futures, indices) as well as what Bloomberg calls 'reference data' - i.e. what is the multiplier of ESU4, what ...
4
votes
2answers
328 views

Plain Vanilla Interest Rate Swap

I'm trying to build an intuitive understanding of the following $\textit{The price of the replicating portfolio at time $t$ of the floating rate receiver is}$ ...
0
votes
0answers
37 views

URL with SEC data

Do you know a URL where i can find the CIK of a listed company PLUS ON THE SAME URL the filing dates of 10-Q or 10-K documents? So i can create this url ...
0
votes
0answers
35 views

how to collect tips amount during GDP calculation?

Let's say Tom had lunch in a restaurant and paid \$50 for the bill, he also give waitress Mary \$5 as tip. \$50 would be calculated as the service industry while calculating GDP, there's bills to ...
3
votes
1answer
174 views

What return equation is Engle referring to in his Nobel lecture?

Engle comments in "Risk and Volatility: Econometric models and Financial Practice" that If the price of risk were constant over time, then rising conditional variances would translate linearly ...
1
vote
1answer
179 views

How to hedge a forward contract

I was asked this in an interview and I messed it up lol. This might actually be really basic. Let's say I signed a forward contract to buy NASDAQ at 4000 one year from now. How can I hedge this cash ...
1
vote
2answers
524 views

Free database for storing intraday tick data and querying bar (candle) data on budget hardware

I'm using a cloud machine with 512 RAM to store tick data in mysql, but I'm having trouble querying candle data. My current solution is to select all data within a time interval and do the tick -> ...
9
votes
1answer
327 views

What are the major characteristics of natural gas volatility and options?

Seasonality is a big deal in the natural gas markets. My understanding is that they are broadly divided into summer and winter, with seasonality in both price and the volatility. What does this ...
3
votes
1answer
84 views

Time-Varying Volatility and Conditional Likelihood

Engle's comment in his seminal paper "Risk and Volatility: Econometric models and Financial Practice" mentions that I had recently worked extensively with the Kalman Filter and knew that a ...
9
votes
3answers
2k views

Is there an intuitive explanation for the Feynman-Kac-Theorem?

The Feynman-Kac theorem states that for an Ito-process of the form $$dX_t = \mu(t, X_t)dt + \sigma(t, X_t)dW_t$$ there is a measurable function $g$ such that $$g_t(t,x) + g_x(t, x) \mu(t,x) + ...
1
vote
0answers
145 views

What's the link between EURIBOR3M futures volatility and rates volatility?

If I am not wrong, EURIBOR3M futures with maturity $T$, whose price is $F_{T}$, are quoted like contracts which express the underlying forward rates, $r_{T}$, as $$r_{T}=\frac{100-F_{T}}{100}$$ Now ...
3
votes
2answers
245 views

Price an option and find a replicating portfolio

I got stuck on the following question whilst learning about basic option pricing. A stock is valued at \$75 today. An option will pay \$1 the first time the stock reaches \$100 in value, which it ...
2
votes
0answers
62 views

Triangular Arbitrage formula [closed]

i have 3 currencies AUD, USD and EU I am trying to work out the mathematical formula to work out if there is a spread/arbitrage opportunity as well as the maximum amount that can be conducted ( for ...
3
votes
2answers
118 views

How to Calculate a Monte Calo VaR estimation error

I'm performing a Monte Carlo to calculate value at risk (with a 3 dimension risk factor) Now, I would like to calculate the error of the estimation of the VaR with respect to the number of simulations ...
0
votes
0answers
63 views

What is the arbitrage opportunity in Arrow-Debreu One Period market Model

The one period market model is made of 4 securities(A, B, C, D) and has 4 future states. Assume the market model is complete. and the state prices are (-2, 2, 4, 8). Given that I dont know the payoff ...
0
votes
1answer
39 views

What is shorting a asset that has negative price. Can anyone give me an example? [closed]

What is shorting a asset that has negative price. Can anyone give me an example?
3
votes
3answers
210 views

Is the number of outstanding shares a stationary series?

I'm doing a panel data analysis where the log of the freefloat number of outstanding shares is one of the explanatory variables, but it fails the Augmented Dickey Fuller and Person Phillips unit root ...
3
votes
1answer
146 views

what was the quant role in the 2008 crash?

this is a complex topic that interests me, have researched myself, & is debated heavily in the media and there is lots of writing, even entire books/documentaries. maybe somewhat surprisingly, ...
1
vote
0answers
42 views

How do bond futures affect effective rate when used to hedge a bond's duration?

I'm trying to wrap my head around what happens to the net interest received when an invester goes short a bond future to fully hedge the duration of his long position in an actual bond. Does it ...
7
votes
2answers
468 views

Change of measure discrete time

Suppose I have a random walk $X_{n+1} = X_n+A_n$ where $A_n$ is an iid sequence, $\mathsf EA_n = A>0$. How to construct a martingale measure for this case?
0
votes
2answers
116 views

Practical equity options pricing

To price a vanilla option, the following information are required : Strike price; Underlying price; Volatility; Maturity; Dividends rate; Repo rate; Interest rate; The strike, underlying price, ...
0
votes
1answer
344 views

S&P's Sovereign Ratings: Clarification on Definitions and Symbols

Similar to a question I asked earlier on, but I am now looking at S&P's sovereign ratings. Here, as in the case of Moody's, a few things are unclear to me in terms of the definitions used by ...
0
votes
1answer
78 views

Pricing options with two assets

I'm studying for a test and am stuck on this practice question: With interest rates equal to 0, two different stocks $S_1$ and $S_2$, both valued at \$1 today, can be worth \$2 or \$0.50 at some ...
0
votes
0answers
35 views

swaps valuation

I am asked to solve the marking to market value(MtM) of a swap, unfortunely i´m having big troubles finding the solution, it´s a 5.5% (vs. LIBOR) 10-year swap, The notional is 500 mio USD and LIBOR ...
10
votes
1answer
2k views

Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
2
votes
1answer
215 views

Moody's Sovereign Ratings: Clarification on Definitions and Symbols

I'm working with sovereign ratings at present. With regard to Moody's there are a few things unclear to me in their definitions. Both questions refer to the sovereign rating history in Bloomberg CSDR ...
0
votes
0answers
44 views

Transaction costs of lending and borrowing

What are the transaction costs of lending and borrowing? How financial intermediaries reduce transaction costs of lending and how they reduce costs of borrowing? Thank you!
2
votes
0answers
166 views

Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility?

From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ...
2
votes
2answers
129 views

What information about the stochastic process is available from path-dependent options?

Assume the stock follows a process, which is defined by the following stochastic differential equation $$\frac{dS}{S}=r(t)dt+\sigma(S,t)dW,$$ so that the stock price process has local volatility. ...
5
votes
1answer
115 views

Model calibration to illiquid assets when pricing options with long maturities

Let us assume one is interested in pricing an option with a very long maturity (up to 20 or 30 years) on a liquid underlying. The market won't have liquid quotes for the higher maturities. Still you ...
0
votes
1answer
54 views

How does buying back stock affect a company's credit spread?

How does buying back stock affect a company's credit spread? Would it cause it to get smaller? Any clarification would be appreciated.
2
votes
0answers
81 views

Derivation of variance of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ...
1
vote
3answers
371 views

What are some of the best quantitative finance websites? [closed]

Not looking to start a debate. Just want to learn more about the field and am looking for some websites with high quality, informative content.
15
votes
5answers
4k views

Free paper trading site with an API

I've got a quanitative trading model I want to test out in the real stock market. Right now, I'm writing some code to pull "live" quotes from yahoo, feed them to my model, and keep track of the ...
3
votes
0answers
179 views

How are quants able to verify whether their calculated prices are any good

This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ...
2
votes
2answers
192 views

Is there any academic material regarding robust optimization with fixed transaction costs?

I'm looking to piece together a robust optimization model that handles robust optimization with fixed transaction costs and other combinatorial variables (e.g. asset count constraints). Here's what ...
6
votes
4answers
615 views

How to cluster ETFs to reduce cardinality for portfolio selection

I'm looking to run portfolio optimizations using various optimization goals - e.g. minimum variance, max diversification etc. My challenge is if I want to do this on ETF's which ones do I pick to run ...
7
votes
2answers
247 views

Extrapolating implied volatilities to small time

Could anyone please direct me to literature or methods for extrapolating the implied volatility surface towards small expiry? I'm looking to price very short time to expiry binary options (e.g. 5 ...
4
votes
3answers
2k views

Arbitraging OANDA continuous rollover vs other brokers' discrete rollover

Most brokers compute rollover once a day (2200 GMT), but OANDA calculates it continuously. I thought I'd cleverly found an arbitrage opportunity, but it turns out OANDA knows about this and ...
3
votes
1answer
94 views

Summary statistic for the average probability of default?

I have the following scenario: Let $X_i$ denote the event where some institution $i$ 'defaults' (don't worry about the exact definition of a default here, it is not relevant to the question at hand). ...
0
votes
0answers
23 views

How to rightfully balance the share of the organization between departments after variable changes?

This is an abstracted version of the problem I'm facing and I have to tell you first, my question might not be precise and or even correct, so I hope you understand and in that case can improve the ...
2
votes
3answers
91 views

how to back out levels from a forecast of differenced series

I have a non-stationary series of bond yields $x_{t}$ that are logged and differenced $$y_{t}\equiv ln\left(x_{t}\right)-ln\left(x_{t-4}\right) $$ From that, I get a series of forecasted values ...

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