1
vote
0answers
45 views

Are commodities a real assets or a physical assets? [closed]

In CFA Level Reading 45 Commodities include precious metals, energy products, industrial metals, and agricultural products. Real assets are tangible properties such as real estate, airplanes, ...
2
votes
0answers
28 views

How does risk attitude influence trading? (Bibliography seeking)

I wonder how risk-averse or risk-seeking investors behave in a stock market. Is there any bibliography that deals with that? For example, suppose that we have a risk-averse investor that buys a ...
2
votes
1answer
212 views

What are the pros and cons of historial and Gaussian approaches to VaR?

What is the difference between historical and Gaussian method of VaR estimation? I know how they are calculated, but what are the pros and cons of each?
4
votes
1answer
117 views

Understanding skew of SPX - Why does IV of OTM puts increase with strike?

I've been trying to understand the skew I see when looking at the skew of SPX. Here is a snapshot today from thinkorswim. I understand why IV increases for ITM puts -- namely because there is a ...
1
vote
1answer
44 views

Stressing the going up of LIBOR - Which balance sheet variables to stress?

Analysts expect the LIBOR to rise in the next two years. Hence, all companies that have foreign currency loans will face problems. I am preparing a study on this topic, but data is an extreme issue. ...
2
votes
2answers
80 views

How to perform portfolio optimization with user-defined expected return and variances using R?

I found some functions for Markowitz mean variance portfolio optimization in R such as portfolio.optim in tseries package. ...
2
votes
1answer
63 views

How to optimize a portfolio using skewness?

I am trying to do portfolio optimization for 5 stocks taking into account skewness of the portfolio but I am unable to incorporate skewness to the mean variance model. Can anyone please help on how ...
2
votes
1answer
90 views

SABR Implied Volatility and Option Prices

I am trying to understand SABR model. I am having difficulty to understand how to calibrate ABR a) the initial variance b) the volatility of variance c) the exponent for the forward rate d)the ...
1
vote
0answers
30 views

Commercial Vendors for Risk Management and Portfolio Optimization and Performance Attribution

So this question is directly about companies such as Axioma, Barra, Northfield, and etc. that provide risk management, portfolio optimization, and performance attribution related services. I want to ...
1
vote
0answers
47 views

Returning historical yield rates for Mortgage Backed Securities in a Bloomberg Terminal?

Forgive me if this isn't the right place, and direct me to the correct place to post. I've been trying to figure out how to get the yield rates for Mortgage Backed Securities (MBS's) in the United ...
2
votes
1answer
78 views

Define polynomials of an ARMA process

I just started out with financial time series and I'm a bit stuck with ARMA models. I have the following ARMA process: $-4X_t + X_{t-2} = Z_t + 0.2 Z_{t-1}$ Now I am being asked for the polynomials ...
3
votes
1answer
114 views

Boundary conditions: Dirichlet vs Neumann

I'm thinking about the interplay of Dirichlet and Neumann BCs in a FDM scheme. Let's assume a simple Black-Scholes call option problem, with BS PDE with constant coefficients, i.e. instead of $S$, in ...
3
votes
2answers
208 views

Risk-adjusted performance measurement: Log returns vs. simple returns and geometric vs. arithmetic mean return

I have just simulated 49 weeks of correlated returns on 5 different stocks, assuming returns being lognormally distributed. Next, I am supposed to assume that the simulated 49 weeks of returns ...
1
vote
0answers
51 views

How to build a bond model portfolio (Invested in Emerging markets) [closed]

I have to build a model portfolio from the data of a portfolio composed of bonds from Emerging Markets accounted in $ (So exclusively corporate bonds from emerging markets). Do you have any ...
9
votes
3answers
348 views

Historical Volatility vs Implied Volatility Performance in Pricing Options

I consistently read on academic papers, when pricing options, using implied volatility is better than using historical volatility. Because, market is more "forward-looking" and historical data is ...
3
votes
4answers
177 views

Model Price vs Market Price in terms of Fair Price (Options)

Before I start: Ok, this is something I investigated for a fair amount of time and my question is semi-academic. To simplify, I will introduce the short bit (TLDR) of my question and then lay out ...
2
votes
1answer
61 views

How to use Euler discretization for this interest rate model?

How can I perform Euler discretization on this model where $\delta t=1$ and $\delta x_t = x_t-x_{t-1}$
2
votes
2answers
85 views

Is there an implementation of VAR-EGARCH model in R or Stata?

I am writing my undergrad honor thesis and want to run a multivariable VAR-EGARCH model. Is there any package in R or formulas in Stata 14 that allows me to implement directly? If not, could you ...
2
votes
1answer
44 views

How to retrieve and format futures data for use in regression/time series models?

I need to form a predictive time series model for monthly Brent crude oil spot price. I am looking to form 1-12 month ahead forecast horizons. There is a bounty of previous literature which uses ...
0
votes
0answers
52 views

How to fit a copula to empirical data?

There are numerous types of Copulas one can choose to fit empirical data. My question is wow to select the 'best' copula to fit the data. More specifically, let's assume empirical data ...
3
votes
2answers
160 views

Why does the valuation of the floating leg of a swap only use the next payment?

At time $t=0$, swap has zero cost. In fact, both parties may have valued the swap differently based on their zero swap curve-but somehow they agreed. Once a swap is agreed upon it cannot be dissolved ...
3
votes
2answers
104 views

What programming skills are needed in quantitative finance? [closed]

I’m considering a career in finance when I complete my PhD in Mathematics in 2016. My only major programming experience was a C++ course during my MPhys in the 2007-8 academic year, although since ...
1
vote
1answer
25 views

What are pre and post stress capital?

Fed papers make reference to a post-stress and pre-stress capital. I can't find definitions of these online, but from the context (below), it sounds like the post-stress capital is the estimated ...
1
vote
0answers
35 views

Generalized method of moments concept in CAPM testing

In the course of my master thesis I’ve come across a paper by Carr and Wu (2009) where the authors evaluate whether returns on variance swaps can be explained by the simple CAPM. (really only market ...
1
vote
2answers
134 views

What methods are there for showing a time series is mean reverting?

What methods are there for showing a time series is mean reverting? Is there a hypothesis relating to the Ornstein-Uhlenbeck process for example?
3
votes
1answer
237 views

Delta Hedging with fixed Implied Volatility or floating Implied Volatility?

When delta hedging an option until expiry at implied volatility, is it better to rehedge using the fixed implied volatility given by the option price upon its purchase (or sale), or to rehedge using ...
2
votes
2answers
109 views

Fundamental CAPM questions

A couple questions about the CAPM model: If I only know the riskfree rate and expected market return, how do I solve for $\beta$ ? Given the stock's variance, how do I solve the percentage of it ...
2
votes
2answers
72 views

Meaning of conservative in risk management?

I believe this question is best asked here, as it pertains to risk, rather than English SE. What is the meaning of conservative in the context of risk management? In general, conservative would mean ...
5
votes
2answers
85 views

Constructing a Brownian motion from a Simple Random Walk

I'm trying to get my head around how a Brownian motion is formed from a simple random walk. I've seen two similar methods used: Why has one approach used $\frac{1}{\sqrt{k}}$ and the other ...
1
vote
0answers
77 views

How to calculate break-even point of merged plant/company?

The question goes like this : ...
1
vote
0answers
21 views

Market portfolio [closed]

If I create portfolio consisting of three stocks and build efficient frontier for this portfolio and if there is a risk free rate for treasury bills and then I draw tangent line from risk free rate on ...
2
votes
2answers
99 views

Why is convexity adjustment applied to swap price for a nonstandard swap, in simple terms?

Martinelli et al. show that when the 3-month Libor is replaced by the 3-month Libor forward rates (which are obtained from the spot zero-coupon yield) then the swap price depends only on zero-coupon ...
2
votes
1answer
98 views

Bloomberg Python Question - How do you access PRTU via python?

I am having some trouble using python to access Bloomberg as I cant find much documentation. All I really need to do is a simple lookup of dates in the PRTU function of Bloomberg, PRTU via a python ...
1
vote
1answer
73 views

Obtaining the drift of a Wiener process formed from a random walk

I'm trying to understand how the equation for Geometric Brownian Motion is formed from a random walk. I'm following the book 'Statistics of Financial Markets' but I'm struggling to follow how the ...
2
votes
4answers
176 views

Bond portfolio hedging against currency risk

How do I hedge a bond portfolio against currency risk? Ideally I'm looking for books or other references on this topic.
4
votes
2answers
105 views

Compare the IRRs of two bonds

Say i have two 3 year bonds, which pay an annual coupon of 8% (1st bond) and 10% (2nd bond) respectively. Also, let's assume, that the spot curve is the same for both bonds. Other things equal, how ...
2
votes
0answers
31 views

Working Capital Change vs. Working Capital Changes-Total

I am working with compustat data and I can't figure out difference between 2 columns: Working Capital Changes - Total Working Capital Change / Other / Increase/(Decrease) For the same date columns ...
1
vote
1answer
50 views

impact model what volatility to use

I am looking at the market impact paper here (http://www.cims.nyu.edu/~almgren/papers/costestim.pdf) and I had a question about volatility on page 11. On page 11 it is stated: "For volatility, we use ...
0
votes
1answer
46 views

Implied inverse forex pair bid/ask spread

I just wanted to make sure this was correct: If AUD/USD has bid ask of 0.71999/ 0.72032, that implies there is another (theoretical) pair USD/AUD which has a bid ask of (1/aud_usd_ask) / ...
2
votes
2answers
80 views

Verifying an identity of an equation for Black Scholes formula

I just started working on the Black Scholes formula with help of the book Financial option valuation by Higham. Apparently you are possible to derive the following function: ...
2
votes
4answers
105 views

pricing american calls on non dividend paying stocks

It is never optimal to exercise an american call option early if it is written on a stock that doesn't pay dividends, yet when pricing such an option, using a binomial model, we check whether or not ...
3
votes
1answer
62 views

Discounting dividends and terminal value in valuation

I am new to finance and valuation in particular. I have a query regarding discounting dividends and terminal value for valuation using dividend discount model. I have created an illustration to help ...
1
vote
2answers
51 views

Trying to understand how to convert profit to home currency

I'm looking at example 2 here: http://fxtrade.oanda.ca/analysis/profit-calculator/how ...
1
vote
2answers
65 views

Risk free rate proxy

Why is the US 30 day t bill traditionally used as a risk free rate instead of Euro bonds for example? They are both not going to default surely?
1
vote
0answers
20 views

Why is the forward price set to make the value of the forward contract to 0 when it is signed? [closed]

When I study the forward contract, I read that the forward price must be the price that makes the the value of the contract zero. I searched for the answer, but there are many versions. Some say it ...
3
votes
0answers
99 views

What is the difference between gross and net enterprise wide risk?

Reading a Basel paper on recommendations on internal economic capital models. One of the recommendations says members of the bank's board should be able to demonstrate understanding of the difference ...
5
votes
1answer
318 views

How to use a change of numeraire to price this option?

I recently asked this question regarding how to price an option with payoff: $$\text{Payoff}_T = (A_TR_T - A_T \lambda)^+ $$ Let's assume for generality that $A_t$ and $R_t$ are GMB's: $$dA_t = ...
2
votes
2answers
135 views

CFD - how does it work?

I'm trying to understand how CFD works. I have question about market maker. Who is market maker for CFD? Is it a company which provide a trading platform or any stock exchange? EDIT01 @noob2 thanks ...
4
votes
1answer
78 views

How does RAROC identify capital requirements?

I've read that RAROC is used to set economic capital requirements for different products, projects, business lines etc. Is it just a matter of solving for the required economic capital level to ...
1
vote
1answer
53 views

Applying interest rate models for volaility rate

To what extent may the interest rate models be applied for modeling implied volatity? The story: I was checking different stochastic option pricing models for being able to replicate implied ...

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