1
vote
1answer
31 views

market change, correlation and estimation bias

I hear many quants sating that markets change very slowly. This "fact" is even presented as a justification of statistical arbitrage, for example, by affirming that correlations remain roughly the ...
1
vote
1answer
84 views

Completeness and Hedging Question

A question in some private notes I'm struggling to work through (exam. prep.). (iii) is where I hit a wall with my understanding & I'm lost thereafter. Any help/clarification gratefully received. ...
0
votes
2answers
114 views

How to handle currency change in exchange rate volatility measurement

I am trying to measure exchange rate volatility in some countries and I am using their currencies against euro. Problem is that one of them is Slovakia which has changed the currency in 2009 from ...
0
votes
0answers
19 views

reference for elementary mortgage math

I have a student doing a project on default rate & prepayment rate for mortgages. She would like to include a section on how the quantities affect pricing, & so would like to reference a ...
2
votes
2answers
133 views

Relationships between white noise and random walk

I would like to ask 5 questions about relations between these processes. 1) Could white noise be also a random walk? 2) Could random walk be also a white noise? 3) Could white noise be stationary? ...
2
votes
1answer
185 views

Why is this delta-hedging/P&L example on a variance swap call correct?

I'm looking into this article about var swaps: http://sbossu.com/docs/VarSwaps.pdf and not sure how to correctly interpret Exhibit 2.1.1. "In this example an option trader sold a 1-year call ...
1
vote
0answers
27 views

Specifying integration level of time series [closed]

Following model was estimated on 200 observations. How to specify the level of integration of $X_t?$ In brackets there are standard errors and p-value of Breusch-Godfrey test is also shown. ...
1
vote
2answers
72 views

Vega hedging with implied volatility smile

I have a problem with vega hedging. Consider the management of an exotic derivative, such as Barrier option. Typically we do the following tasks: selecting a pricing model, say, a local volatility ...
5
votes
1answer
87 views

How to calculate Skulls Financial Turbulence for one asset?

I have just read this paper http://www.cfapubs.org/loi/doi/abs/10.2469/faj.v66.n5.3 In the paper they define financial turbulence formula as: Could anyone help me calculate/understand this ...
6
votes
2answers
492 views

Market making in thinly traded assets

Could anyone suggest some literature or have any practical advice for marking a market in thinly traded assets with the following characteristics: 0-10 trades per day. Open limit-order book with 0-5 ...
0
votes
1answer
31 views

How to arrive at expectation of negative utility function via Taylor series expansion

I'm attempting to follow an author's steps in an argument and having trouble seeing how Taylor series expansion can be applied to give the stated result. The scenario is as follows. The mid price ...
2
votes
1answer
62 views

Hidden/Dark Pool Hedge Funds

Is there a noun for investment funds which do not disclose the assets they are investing in to their customers? Some exchanges are called "Dark Pools" where the orderbook is hidden to traders, so I ...
1
vote
1answer
42 views

Lease Accounting / FX Embedded Derivatives

I have a lease agreement where the functional currency is USD, domestic currency is UAH. Lease agreement is written in EUR (rent rate) and payments are to be done in UAH in the amount of rent rate ...
0
votes
0answers
21 views

how best to equalize individual pair risk in a portfolio of stock pairs?

I am building a portfolio of stock pairs in which each pair is individually hedged via beta/hedge ratio adjustment. I am looking for a method to ensure that I am taking the same risk in each pair that ...
0
votes
0answers
13 views

Stiffness of numerical methods for SDE

What can I do with stiffness of numerical methods for SDE? I want to use numerical approach for solving SDE in market's scenarios generation. Is there any general approach to handle it?
3
votes
3answers
112 views

market neutral weights and cash values

I am looking at a market neutral portfolio and have a question which I think is probably pretty simple. So I can see the individual stock weights. ...
3
votes
1answer
73 views

Is there a Bloomberg field for the first trading date after an event?

For example, if a company reports earnings today after the close (6/24), the earnings date would be 6/24 but the field I'm looking for would be 6/25. If they reported tomorrow before the open, both ...
3
votes
0answers
133 views

Log-normal mixture models for implied volatility

My question is about a the proof that can be found in the following article by Brigo et al. https://people.kth.se/~lang/arkiv/finans/exjobb/anton/lognsmil.pdf The main definitions and formulas need ...
0
votes
0answers
25 views

Smoothening yield curve by minimizing forward curve slope

I am using government bullet bond data and have bootstrapped a yield curve by solving the following optimization which minimizes unweighted price error: ...
0
votes
1answer
26 views

How do right-to-break clauses affect CVA calculations

Does the presence of a optional/mandatory right-to-break clause affect CVA calculations, and if so, how? Given two (otherwise identical) 10y swaps with the same counterparty, one of which has a right ...
3
votes
1answer
136 views

Measuring momentum as AR(1) process

I would like to measure the momentum in the price of a stock from the time the market opens until the time I trade each day. I want to use this momentum number in post-trade analysis (regression of ...
1
vote
2answers
135 views

Semi-variance/Downside Risk, what about the rest of the covariance matrix?

I just bumped into a rather interesting article from wikipedia : http://en.wikipedia.org/wiki/Downside_risk where they define the semi-variance also called Downside risk, which bascially only ...
0
votes
1answer
42 views

Explain equation to calculate CDS spread

I've come across this equation in a text and can't figure out what part of it is doing. (Using quarterly installments) $\frac{1}{4*10^4}s^t \sum\limits_{u=1}^{4t} p_{0.25u}[(1-\pi_{0.25u}) + ...
2
votes
1answer
455 views

ex ante tracking error correlation between funds

I have two portfolio's called Comb & Global. They both have the same investable universe lets says 3000 stocks & are measured against the same benchmark. So it is possible that both funds hold ...
0
votes
1answer
26 views

DCF equity valuation [closed]

I am trying to gain a deeper understanding of equity valuation. I have been looking for excel examples. Can someone suggest me a source. Thank you very much.
13
votes
3answers
4k views

Papers about backtesting option trading strategies

I am looking for all kinds of research concerning option trading strategies. With that I mean papers that publish results on different option trading strategies properly backtested with real-world ...
4
votes
1answer
136 views

Does GARCH derived variance explain the auto-correlation in a time series?

Given a time series of $u_i$ returns where i=1 to t. $\sigma_i$ is calculated from GARCH(1,1) as $\sigma_i^2=w+\alpha u_{i-1}^2 +\beta \sigma_{i-1}^2$ . What is the mathematical basis to say that ...
1
vote
1answer
361 views

MonteCarlo simulation of stock prices using milstein scheme with dividend yield?

While performing a montecarlo simulation of stock prices using the milstein scheme is it possible to take into account the dividend yield into the simulation itself somehow, if we are given a ...
11
votes
1answer
218 views

What mathematical models did Harry Markopolos run to prove that Bernie Madoff 1% a month gain was a Ponzi scheme?

http://www.cbsnews.com/news/the-man-who-figured-out-madoffs-scheme-27-02-2009/ Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know ...
0
votes
1answer
95 views

Numerical Solutions for PIDE

I want to solve an exotic options of PIDE by Numerical Methods.I just focus on the integral part of PIDE and want to underestand some tips on numerical solution of how to numerically solve it. Exactly ...
14
votes
1answer
7k views

How to interpret the eigenmatrix from a Johansen cointegration test?

I ran a Johansen cointegration test on 3 instruments, A B and C. The results that I got are: ...
5
votes
1answer
13k views

How to interpret results of Johansen Test?

I have two time-series a & b. The objective is to find out whether two series are cointegrated or not. I am using Johansen Test in R to find this out. I am using urca package of R. Here is the ...
10
votes
2answers
2k views

How can I compare distributions using only mean and standard deviation?

I only have means and standard deviations of samples of two random variables. What technique can I use to determine how similar the distributions these describe are? Assume that the values are built ...
6
votes
1answer
206 views

Distribution of hitting time of the integrated CIR process

If an increasing process $X_t$ has a known Laplace transform $\mathbb{E} e^{-s X_t} = m_t(s)$, define its hitting time $\tau$ to some level $B$ to be $$ \tau = \inf\{ u > 0 : X_u \geq B \}. $$ Can ...
1
vote
1answer
10 views

Distress firms and cross section returns

In George and Hwang's 2010 JFE paper, they are trying to resolve the so called distress risk and leverage puzzles. This is their explanation: This is a puzzle because high distress intensity or ...
0
votes
0answers
23 views

Whats the formula to calculate the FV, incorporating monthly deposits?

I need a Formula to calculate the future value of an investment based on current principal, interest, number of years, compounding interval (times annually) and monthly deposit. So basically ...
0
votes
1answer
59 views

Citable source: Why implied volatility over dollar prices

I am aware of the reasoning of quoting vanilla options as implied volatilities rather than dollar values. However, I would like to have a literature reference where this is explained, to quote / cite ...
0
votes
1answer
54 views

Weights Blowing up in PCA

I'm using daily settlement data to get yield levels for a couple of products. From this data I am doing PCA on a rolling collection of the yield levels. I have been using sci-kit learn's PCA function, ...
3
votes
1answer
88 views

Wrong discount factors when finding Nelson Siegel Svensson model parameters

I am trying to determine the parameters for the Nelson Siegel Svensson model and am solving a Non- Linear Optimization problem to do this. Some of the code I have written is below and this is where my ...
2
votes
1answer
68 views

Orthogonal Regression/PCA

I am doing orthogonal regression. My X matrix consists of returns on a broad market index, value index, growth index, a few sectors,.....(my Y is the returns on an equity fund) I am regressing the Y ...
20
votes
5answers
3k views

Machine Learning vs Regression and/or Why still use the latter?

I come from a different field (Machine learning/AI/data science), but aim to ask a philosophical question with the utmost respect: Why do quantitative financial analysts (analysts/traders/etc.) prefer ...
2
votes
2answers
804 views

Forex ECN for Algorithmic Trading

I'm looking for a forex brokerage that allows me to: add limit orders to the order book and trade against other clients However, when I look at the looks of fxcm, alpari, robofx, ... it appears all ...
1
vote
3answers
76 views

What is the difference between market equilibrium and market efficiency? equilibrium implies efficiency?

The market efficiency hypothesis means securities are traded at their fair price. If the market is at the equilibrium, does it mean the market is efficiency? If equilibrium cannot implies ...
1
vote
1answer
36 views

Investor choice problem

Guys I'm stuck with a problem... Consider the portfolio choice problem of a risk-averse individual with a strictly increasing utility function. There is a single risky asset, and a risk free asset. ...
0
votes
1answer
273 views

How to price this option using the Black Scholes model?

I have a question regarding regular option pricing. In the standard Black-Scholes model, with interest r and volatility $\sigma$, I have to eetermine the arbitrage free price at time $t$ of an ...
0
votes
0answers
18 views

Strange / Incorrect / Unusual Data on Google Finance 1988 [duplicate]

Looking at XOM (but it is the same for many stocks) there is an odd drop in the stock price during 1988. It drops around the new year and pops back up around the next new year. This drop is present ...
2
votes
1answer
71 views

Proving Derivative Property of Moment-Generating Function

In Shreve II, exercise 1.8, he walks the reader through proving the derivative of a moment-generating function $\phi$ is equal to the expectation $\mathrm{E}[Xe^{tX}]$; i.e., $$ \phi^\prime(t) = ...
1
vote
1answer
99 views

Differences between editions of Security Analysis by Graham and Dodd?

Where can I find a comparison of the contents, a list of everything that changed or the differences among the different editions of the book Security Analysis by ...
0
votes
0answers
20 views

Maximum Likelihood Estimation Heston Model using Matlab

My question is based on the MLE of the Heston model discussed in this paper URL: http://www.princeton.edu/~yacine/stochvol.pdf with Matlab code: http://www.princeton.edu/~yacine/closedformmle.htm ...
0
votes
1answer
30 views

How to weigh many factors using a SMA/EMA

I'm learning about the SMA/EMA technical analysis, as well as, indicators such as Bollinger Bands, Stochastic Oscillators, MACD, etc. How do you know which one to use and which to weigh more over ...

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