1
vote
1answer
77 views

Stress Testing Methods

I'm working on the following task: Given quarterly data: a time series representing the 1-year realized (10 years of data) rates of default on a portfolio of mortgages a slew of ...
-2
votes
1answer
48 views

Two assets with the same mean and standard deviation - Would there be any benefit? [closed]

If I have two assets in a portfolio with the same standard deviation and mean and the correlation between the assets is 0, theoretically could there be a situation where it would be beneficial to ...
0
votes
1answer
43 views

Does the correlation of matrices has explanatory power when building a pattern recognition model?

I'm using 8 different variables (with daily observations) with the purpose to compare different months across the historical data. For that purpose I calculate the correlation between each month and ...
1
vote
1answer
102 views

Explain drop in Correlation between two time series in consecutive periods

I have a time series for a security list with 2 parameters calculated for each time period. For example, for a stock XYZ, I have Param1 and Param2 calculated over various time periods stacked against ...
1
vote
1answer
168 views

what is a typical way forex brokerages can provide cheap leverage for their customers?

I'm not very well read in the area of high finance but I'm curious how forex brokerages are able to provide the backing for leverage that they can provide to customers. Is it possible to do this ...
1
vote
0answers
67 views

In what kind of stochastic process Ito's lemma is adopted?

I have been told that Ito's lemma serves as the stochastic calculus counterpart of the chain rule. And yet again my tutor mentioned it is not used for all stochastic processes. Is this statement ...
1
vote
1answer
57 views

Analog - Pattern Recognition model using KNN

I'm building a pattern recognition model for my master thesis. The idea is to build a framework with some Macro variables (long/short term rates; rates differential; equity; fx; vix) in order to find ...
5
votes
1answer
110 views

Solving Black-Scholes PDE using Laplace transform

I'm trying to obtain the Laplace transform of Call option price with repect to time to maturity under the CEV process. The well known Black scholes PDE is given by $$ ...
5
votes
1answer
65 views

Girsanov Theorem and Quadratic Variation

Girsanov theorem seems to have many different forms. I've got a problem matching the form in wiki to the one in Shreve's book, due to the difficulty of quadratic variation calculation. Below is the ...
3
votes
3answers
140 views

How to work out weights for a portfolio based on an inverse ratio with positive and negative values?

I am trying to work out how to determine weights for the assets in order to form a portfolio. The ratio I am using is EV/EBIT, hence the smaller the better. The problem is I don't know how to handle ...
2
votes
0answers
97 views

Scale of Market Quakes Computation

I would like to reproduce the results in the paper "The scale of market quakes", from T. Bisig, But I am getting stuck at the computation of the Fourier Coefficients in equation (4). They are defined ...
0
votes
1answer
60 views

What data should be used for regression-based model backtesting?

I ran regressions using historical valuation data and now want to backtest the models I came up with. Are there any issues with using the same historical data set for the backtest that I need to be ...
2
votes
1answer
58 views

What is the best way of updating data while using Empirical Mode Decomposition to analyze

I have a question about EMD updating new data points. For an entire time series, from beginning to the end, the EMD preforms quite good using the cubic spline function. The problem happens when new ...
2
votes
2answers
354 views

Robust Returns-Based Style Analysis

Sharpe's Return-Based Style Analysis is an interesting theory but flawed in practice when working with long-short funds or funds that are changing strategies over shorter periods of time due to the ...
2
votes
2answers
44 views

Is this a reasonable approach to determine the relative importance of valuation factors?

I am trying to come up with a measure of relative importance of a number of valuation factors. I am wondering whether correlation coefficients can't be used for determining this. More on the issue: ...
0
votes
2answers
108 views

How can I calculate Fama-French betas for a particular stock?

For a particular stock, what's the simplest way to calculate betas for the Fama-French factors SMB and HML?
1
vote
2answers
38 views

How to combine Gaussian marginals with Gaussian copula to obtain multivariate normals?

in the book "Numerical Methods and Optimization in Finance" I red the following: "Combining the Gaussian copula with Gaussian marginal gives a fancy way of expressing multivariate normals. However, ...
3
votes
3answers
99 views

Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...
0
votes
1answer
31 views

Why does the price of a convertible bond go up if the CDS spread goes up?

Looking at convertible bond prices in a commercial pricing tool, which is based on a model of Black-Scholes volatility plus a Poisson process of jump to default, I noticed that increasing the spread ...
2
votes
1answer
107 views

Why is two-factor model so popular for bond futures?

Given that which bond in the basket becomes CTD depends massively on idiosyncratic moves among different bonds, should we not be always using N factor model instead of 2 Factor model? By using only ...
2
votes
2answers
109 views

Logic behind Gordon Growth Model in a DCF analysis?

Sorry, I wanted to ask this on the finance/money forum, but they don't support LaTeX there. Let's say we are valuing a company using the DCF methodology with a 5-year projection period. We project ...
4
votes
3answers
133 views

multiperiod optimization using R

I'm interested in multistage optimization problems. Are there any good R packages around to solve such problems over time? I'm not at all an expert in it, so maybe someone knows a good paper / lecture ...
5
votes
2answers
893 views

How is the default probability implied from market implied CDS spreads for CVA/DVA calculation?

From point 38 on P.17 the default probability can be implied from market implied CDS spreads. "Macro Surface" method is mentioned, but I cannot get any clue of what it is? Where do I get the acedemic ...
0
votes
1answer
39 views

Why is the duration of a bond is important?

I know what it measures, but now in the age of computers why is it useful? If the yield changes, we could just simply plug the new yield into a program, or excel or something like that, and calculate ...
2
votes
1answer
82 views

Does anyone have a C# implementation of the Barone Adesi Whaley options pricing model?

Thanks. Can't seem to find it through google. Worst case, if you can provide me the code in Java or C++ I can convert it to C#.
1
vote
1answer
36 views

Hedging using relative values

Consider I have two stocks $A$ and $B$, $A$ is trading at $\$40$ and $B$ at $\$30$. The standard deviation of its returns are $\sigma_A=25\%$ and $\sigma_B = 30\%$. Correlation between the returns is ...
11
votes
5answers
1k views

How to optimally allocate capital among trading strategies?

I'm trying to find an optimal way to allocate capital among trading strategies. "Quantitative Trading" by Ernie Chan claims on page 97 that the optimal fraction of capital to allocate to a given ...
1
vote
2answers
182 views

Why is “full” Yield Curve (term structure of interest rates) 3 component based?

I am trying to understand bond-valuation and construction of yield curve. I don't have any exposure to bootstrapping or what-so-ever as of now. So it's appreciated to have an example but not too ...
1
vote
1answer
42 views

Is there a way to adjust R PerformanceAnalytics function VaR with EWMA or GARCH method?

Is there a way to upgrade R PerformanceAnalytics function VaR with more risk sensitive approaches like EWMA or GARCH? Or is there another R package which can handle the issue?
2
votes
1answer
60 views

Do people hedge with leveraged ETFs intraday? How?

Seems that the answer to the first part should be yes, but haven't seen any references or examples. E.g. suppose I want to hedge XLF position with FAZ. Do people use close to current returns, or just ...
1
vote
1answer
34 views

Calculating short/long order percentages?

I have a feed in real time that lists the ask and bid orders. Each order consists of a value and a quantity. I want to calculate the percentage of short orders from the total orders in terms of ...
5
votes
0answers
48 views

For which instruments performs SABR/LMM better than LMM?

For which class of instruments the SABR/LIBOR Market Model does perform better than the classical LIBOR Market Model? The LIBOR Market Model The LIBOR Market Model — also known as Brace, Gatarek, ...
0
votes
2answers
100 views

Can selling put equity options be a good business?

In one of his last books Jack D. Schwager suggested that selling equity puts can be a good business. The puts are like insurance policies against market downturns and there is a natural demand. ...
0
votes
1answer
64 views

list of ADR's by volume or market cap

I'm looking for a list of ADR's (for a simulation) that I can screen by either market cap or volume? If anyone knows of a free way to get such a list it would be much appreciated.
0
votes
1answer
37 views

Calculating returns for a mutual fund with dividends

I'd like to calculate returns for a given mutual fund (in this case, PRWCX from troweprice). When I look at their published performance, it says the Calendar Year Total Returns for 2013 is 22.43% but ...
1
vote
1answer
192 views

How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
0
votes
0answers
52 views

Exporting Time Series Data For Securities Prices From Bloomberg to Excel

I have a list of securities over a thousand entries long that I want to construct a time series of prices for over a specified historical period (e.g. 2/01/10-2/20/10). Doing this manually would take ...
0
votes
2answers
42 views

Question 1.18 from Hull's Financial Risk management CAPM

A portfolio manager maintains an active portfolio with beta of 0.2. Risk-free rate is 5% The market return for a particular year is -30% The fund produced a result of -10%. He claimed the return was ...
1
vote
0answers
18 views

Collateralized Loan Obligation - reliable source of information

Can someone provide me with some reliable source of information about CLOs? Especially some scientific articles etc. Google or wiki are good for starters and I would like to get some examples, ...
3
votes
1answer
92 views

Literature on Empirical Option Pricing

When I started combing through the literature I was astonished about how little the option pricing models are tested against market data and benchmarks are limited. The main barrier is of course ...
1
vote
1answer
38 views

What is Base- vs. Implied Correlation of a CDO tranche?

What is the difference between Base Correlation and Implied Correlation for a CDO tranche?
0
votes
0answers
47 views

Double auctions in online games

I am currently doing a PhD in mathematics and we study the phenomenon of segregation in double auctions. As it is very difficult to gether datas from financial institutions I wanted to start by ...
0
votes
0answers
9 views

Decision Tree - Query [migrated]

I am working on decision trees for the first time at job. I have done lot of research on CHAID and CART algorithms but found different answers to a very simple question given below. What kind of ...
7
votes
2answers
342 views

How to compute the Radon-Nikodym derivative?

Suppose $B(t)$ is a standard Brownian motion, and $B_{1}(t)$ is given by $dB_{1}(t)=\mu dt+dB(t)$. Suppose $P$ is the Wiener measure induced by $B(t)$ on the $C[0,\infty)$, and $P_{1}$ is the Law ...
0
votes
1answer
51 views

Correlation of Dividend Yield Index/Stock

I need your experience and intuition about dividend yields. Indeed, I would to know if the dividend yield of and Index is correlated with the dividend yields of it's componenets separately? The ...
3
votes
3answers
804 views

Library for interactive financial charts

For my recent project I am looking to build a software capable of visualizing financial charts in a dynamically and interactive matter. The workflow is as follows: I gather data from my data ...
-1
votes
1answer
190 views

interpreting huge jumps

i have been working on this trading system that uses digital filters to generate signals. the system works fine during normal market hours. but it goes haywire when there is news release. i have ...
3
votes
2answers
814 views

How to use Merton model to calculate default probability with monthly stock prices?

I want to calculate the estimated default probability with only given data the monthly returns for the last 20 years, the risk-free rate ($R_f$), equity value (EV) and the face value of debt ($D$). My ...
6
votes
1answer
244 views

Consistency of economic scenarios in nested stochastics simulation

I am interested in references on research regarding the consistency of economic scenarios in nested stochastics for risk measurement. Background: Pricing by Monte-Carlo: For pricing complex ...
3
votes
1answer
233 views

Is inverted Japanese style curve persistent when negative rates are real / market - observed?

Are the inverted (Japanese style) governmental yield curves being a sign a recession/credit risk or should they be modelled as being due to a lack of liquidity? (...with such curves evolving into a ...

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