# All Questions

138 views

### How to price a path dependent exchange option using?

Assume you have two stocks $S$ and $P$ so that at initial time $t = 0$: $S_0 > P_0$. You bought an option which pays off $S_T - P_T$ as long as $S_t > P_t$ through the time $0 < t < T$. ...
167 views

### Is marginal probability of default the same as conditional probability of default?

I'm thrown off by the term marginal probability of default. I've seen it defined by some authors as synonymous term for conditional probability of default conditional probability of default: ...
59 views

### Mean variance efficient portfolios and target returns

If I use mean variance optimisation to create an efficient portfolio with a target expected return of 20% in a year's time and find that the actual return at the end of the year was 24%, what explains ...
166 views

### Option greeks vs Position greeks

I know that when it comes to delta, you would calculate your position delta (of a stock position) as follows: option delta * position size * 100 For example if I ...
112 views

### Calibrating stochastic volatility model from price history (not option prices)

For stochastic volatility models like Heston, it seems like the standard approach is to calibrate the models from option prices. This seems a bit like a chicken and an egg problem -- wouldn't we ...
30 views

### Solving Black Scholes PDE using Laplace transform with barrier up and in, up and out call option

I tried to finish the option pricing in european barrier up and in, up and out call option using Laplace transform. The barrier option there is a boundary condition. Can you explain step by step ...
41 views

### Swaption on a swap with 0 year tenor

Any ideas on valuation of IRS swaption on a swap with 0 year tenor? As an example, we have a 5 year swaption, on expiration it is cash settled; the underlying swap tenor is 0 years with excercise and ...
77 views

### Comparing Implied Vol. to Historical Vol. using intraday data

I'm interested in estimating what my profit/loss would be for continuously gamma scalping a delta hedged option over the course of one day, using historical intra-day price data. I found an equation ...
46 views

### Seasonality of Securities & Dummy Variable Regression Analysis

I have some pricing data for some securities that I am looking at for seasonality. 1 My Data is organized as: Date Ret DVar1 DVar2 ...... date % 1 0 date % 0 1 ...
78 views

### Calculating the volatility for Black Scholes

The following problem is from the book by Hull. I did it but I am not sure it is right. I am hoping that somebody here can tell me if I did it right and if not where I went wrong. Thanks Bob ...
26 views

### Credit risk terms differences:

What are the differences between these terms: Contingent Credit Exposure Exposure profiles, Settlement Exposure, Negotiable Paper Exposure. Many thanks!
15 views

### Comparability of random and fixed effects results

I have data of 15 pension funds over 10 years. I want to analyze the relationship between the funding ratio of a pension fund and the asset allocation. First, I do the analysis with the proportion of ...
53 views

### Foresight bias in least square monte carlo

Foresight bias means we tend to over estimate the American option value. This we observe in other areas of statistics - e.g. in sample test almost always gives better prediction than out of sample ...
378 views

### open problems in mathematical finance

What are open problems in mathematical finance that use fundamental concepts of mathematics (functional analysis, geometry and topology, algebra and number theory etc.) and not data-driven. I have ...
59 views

### For a Fama-Macbeth regression , How does one predict the returns based on the model?

Fama-Macbeth does a two-step regression i.e a time-series and cross-sectional regression and we estimate betas and lambdas, so how does one predict based on these parameters, which one to choose?
50 views

### Methods or models to predict activity of clients of a bank

I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious ...
805 views

### Cumulative vs marginal probability of default

I understood the cumulative (aka unconditional) probability of default to be the probability of defaulting in a given period eg: between years 1 and 5. Further $\pi_{cumulative} = 1-e^{-\lambda*t}$ ...
60 views

### Finding Discount Bond Matrix in LMM Model C++

I am working on a 1 Factor Libor Market Model (LMM) in C++ and I working my implementation of the formula to find my Discount Bond matrix via the following formula: In the case of my model alpha is ...
56 views

### Historical index components (FIGIs) from bloomberg?

In order to run strategy simulations, I am trying to build a database of historical equity data using Bloomberg. I can pull the ticker symbols corresponding to the components of an index at any point ...
56 views

### Computing the expected stock growth rate

I need to compute the expected growth rate of a stock given the data: financial leverage 2.0 return on assets 16% dividend payout ratio 60% I don't know how to compute it nor where to start, could ...
110 views

### Can someone explain to me what's snell envelope?

What is snell intuitively? And what is its use in quantitative finance? Please explain to me as intuitive as possible! As I explained in the comments, I am new to this field and I was hoping someone ...
58 views

### Calculating probability of default with no recovery

Given two methods to calculate the 1 year conditional probability of default of a zero coupon bond, I've come up with slightly different but close results. From my approaches below, is it reasonable ...
28 views

### Constrained portfolio optimization - orthogonalize factor exposure

I am optimizing a stock portfolio with a few factors. If I constraint exposure to one of the factors to be a constant and set the exposure to other factors as zero. It is ok to use a diagonal factor ...
117 views

### what is exercise frontier in option pricing

What's exercise frontier in option pricing? It kept popping up but I was never fully introduced to the concept. Follow up question: And is the optimal exercise time the first time the option is ...
15 views

### Min-VAR portfolio construction in a universe of dividend stocks - choosing the observation period

The portfolio construction method of min-variance and similar concepts were discussed quite heavily in the recent past (see for example Thierry Roncalli's page). Over long horzon's we see ...
35 views

### Could you please suggest me the books for Trading System Validation?

I'm newbie for quantitative & systematic trading, and I've read only the books of Howard Bandy & Robert Prado that suggest to do validation by Walk-forward, Monte Carlo and CDF. As my topic, ...
36 views

### Efficient construction of binomial tree

The goal is to build a $n$ step binomial tree knowing the end nodal probabibilities $p_1, \dots, p_m$, which correspond to the time $T$ states $S_1, \dots, S_m$. We assume that all paths ending in the ...
11 views

### where can I find OPRA data? [duplicate]

Where can I find OPRA data. Here are a few criteria 1. Preferably free or for a small price 2. Supports quant api on cloud (so I dont number crunch on my computer) 3. Good reputation company
95 views

### Bond Prices in terms of short and forward rates

Of course, a pure discount bond price $P(t,T)$ may be stated in terms of its yield $R(t,T)$ as $$P(t,T) = e^{-R(t,T)(T-t)}.$$ Let's assume both the (instantaneous) short rate $r(t)$ and ...
107 views

### How to get to this answer on Macauley duration?

Can you explain why the answer to the following question is approximately 4.5%: An investor buys a bond that has a Macaulay duration of 3.0 and a yield to maturity of 4.5%. The investor plans to ...
88 views

### Adding Asset Weights To Cholesky Output - Monte Carlo in VBA

I am looking to create a Monte Carlo generator in Excel to plot correlated asset paths for a portfolio containing 1 to 10 assets. I have the correlation matrix for all 10 assets and have performed the ...
251 views

### Best known performance of stock prediction algorithms

I asked this question here and was directed to answer it on this stack exchange. My question is very simple. What is the best [known] performance of a stock prediction algorithm? I've seen papers ...
25 views

### Is there any research for CoCo-Bond in a two factor model?

Basically I am trying to price CoCo-Bond with the AT1P from Brigo. But in the end this isn´t a two factor model. Is there any concret research about this topic? Kind regards, WLS
40 views

### Moving Averages Crossover question

I'm reading on Investopedia that one should buy a stock if short term moving average is ABOVE the long term moving average, since this "indicates an upward trend". However, this is not intuitive to ...
201 views

### Clever ways of “summarising” the equity fund universe

I am trying to get some advice or direction (brainstorm) as to the best way to summarise/cluster/etc. the equity fund universe (which for my purposes consists of about 150 funds). Some of my ideas at ...
19 views

I've come across this short rate model (I don't know its name, the text simply calls it model 3) which has volatility decaying exponentially over time. $\Delta r= \lambda_t dt + \sigma e^{- ... 0answers 20 views ### Portfolio construction for signals of varying time scales? Wondering if anyone is aware of any research on combining/portfolio construction of signals on different time scales. For example, if I have a trading signal (alpha) that generates trades every hour ... 1answer 61 views ### Binomial tree notation Can someone clarify for me the notation of the nodes in a binomial tree with more than 1 step? Is this notation correct? 1answer 143 views ### Back to Basics — Cumulative Returns I recently came across a chart of Fama-French's (FF) HML factor cumulative performance. I first saw this in an article by AQR's Cliff Asness: ... 1answer 53 views ### List of US Indices [duplicate] I need to do symbology translations between two financial systems. One part of this is to identify a symbol that is an index in one system so that I can prepend a character to it when I send it to the ... 2answers 118 views ### Stopping Monte Carlo simulation once certain convergence level is reached I'm creating a Monte Carlo simulation model which I use to price an European option with various pay-off conditions, hence I can't use Black Scholes. I want to stop the simulation once I am 95% sure ... 1answer 54 views ### When to include dividends in option valuation When using the Black-Scholes-Merton method for option valuation which takes into account dividends, does the dividend only get included into the calculation of options whose lifetime straddles the ... 2answers 94 views ### Corporate bond quote convention I'm not a quant practitioner, but a student so this may be a very simple question. I was of the understanding corporate US bonds were quoted 1/8 increments and US treasuries in 1/32 increments. Such ... 0answers 26 views ### Spotting humps in implied volatility term structure Sometimes implied volatility term structure performs a hump shape. How can I measure the frequency of hump appearence? Basically, I have several years of daily data on IV TS, how can I count the ... 1answer 40 views ### Understanding the necessary and sufficient conditions for rational early exercise of a call option I am self-studying for an actuarial exam, and I encountered the following in my text: The author states that if$PV_{t, T}\text{(Divs)} < K(1 - e^{-r(T - t)})\$, early exercise is not rational. ...
369 views

Yahoo offers an API to download historical intraday data, but I am unable to understand the timestamps on the data. The URL request is: ...
132 views

### CDO selling or buying credit protection?

I think there is an error in the Meissner text - Correlation Risk Modeling and Management and can't find an errata for this text to verify. On page 19 the foot note reads: Shorting the equity ...
10 views

### How to create prospective Bonds for a dynamic portfolio simulation?

The aim is to simulate and to compare different bond portfolio strategies for different interest rate scenarios over ten years. The rebalancing takes place on an annual basis. Hence, e.g. a bond with ...