0
votes
0answers
12 views

Which version of NAICS code is used in CRSP and Compustat?

Is the NAICS code used in CRSP and Compustat always the latest one? If yes, then it means, by this year, they should be using NAICS code 2012 revision. I have some external data which is only using ...
1
vote
0answers
34 views

How do I build a cross currency basis swap pricer using implied levels generated from fx forwards?

How can I construct a simple calculator to imply the cross-currency basis (with sides) from the FX forward and interest rate markets, at maturities under 1y? Depending on liquidity the market in ...
5
votes
2answers
118 views

Cross Currency Swap pricing

I have seen two methods for calculating the value of a xccy swap - 1) Convert the future foreign payments to the base currency using forward FX rates, net with the base currency payments and ...
0
votes
1answer
24 views

Trying to understand T-Bond futures settlement. What am I missing?

Here's a puzzle I encountered when trying to understand how treasury bond futures (/ZB) are settled. Supposed I am short 1 September ZB contract at \$170, and on its last trading day the contract ...
3
votes
1answer
79 views

What is the probability that a Brownian Bridge hits an upper barrier $U$ before a lower barrier $L$?

The probability that an arithmetic Brownian motion process $dt = \mu dt + \sigma dW$ hits an upper Barrier $U$ before it hits a lower barrier $L$ is given by $$ \mathbb{P}(\tau_U\leq \tau_L) = \frac{\...
2
votes
1answer
138 views

Simulate correlated Geometric Brownian Motion in the R programming language

In response to this question: How to simulate correlated Geometric brownian motion for n assets? One of the responses provides an implementation in MATLAB: http://www.goddardconsulting.ca/matlab-...
7
votes
2answers
283 views

How can we have negative probabilities in finance? Can we have negative payments in bonds? If not, how else can we have negative probabilities?

In Half of a Coin: Negative Probabilities, the author mentions bond duration. Suppose we have payments at times $t = 1,2,...,n$ denoted respectively by $R_1, R_2, ..., R_n$ and the discount factor is ...
0
votes
1answer
26 views

Variability of IVs of OTM options

I'm attempting to fit a curve through moneyness/IV datapoints of intra-day options. As you can see, the data gets sparser and more variable for highly OTM options. I'd like to argue why the outliers ...
3
votes
3answers
237 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 ...
3
votes
1answer
55 views

What is the intuition of a spread portfolio and how exactly is it constructed?

In a lot of papers spread portfolios are constructed, like in Harvey and Siddique (1999), Table IV, or in Fama and French (2005 from SSRN), page 15. First, why is it important to construct such ...
0
votes
0answers
27 views

Negative probabilities - what are the two ordinary pgfs that correspond to the gf of a half-coin?

In Half of a Coin: Negative Probabilities, author considers pgf of a fair coin represented by random variable, $X = 1_H$: $$G_X(z) = E[z^X] = \sum_{x=0,1} z^xP(X=x) = (z^0)(1/2) + (z^1)(1/2) = \frac{...
1
vote
0answers
17 views

Can the concept of negative probabilities be used to price a call option?

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
3
votes
2answers
249 views

Pricing when arbitrage is possible through Negative Probabilities or something else

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
0
votes
0answers
24 views

Can someone try this Boundary Condition for the Black-Scholes PDE out for me?

I have a bit of a favor to ask and if anyone could help me out with this I'd really appreciate it. At the moment I'm trying to use the triangle wave formula as the payoff for the Black-Scholes PDE i.e....
1
vote
2answers
31 views

How exactly are correlated defaults used/analyzed?

I've read a lot about correlate defaults but I can't seem to understand how they're used practically in a portfolio theory setting. Suppose I have two (?) companies, X and Y, and historic default ...
1
vote
0answers
31 views

Robust standard errors in GARCH modelling (rugarch)

I am currently conducting some GARCH modelling and I am wondering about the robust standard errors, which I can obtain from ugarchfit() in ...
2
votes
1answer
65 views

How do I calculate the probability of a short option position expiring worthless?

I want to be able to determine the probability of a short option position (call or put) expiring worthless. Don't know where to start but I see probabilities derived from the greeks on some web sites?...
1
vote
1answer
45 views

How do I calculate yield from a bond futures contract?

I would like to know how I can calculate the yield of a bond futures contract(say the 5 yr treasury "FVM05" is trading at 108.2)? I am not sure how to go about calculating the yield of the futures ...
1
vote
1answer
80 views

Generating random yields

I would like to test different methods for fitting a yield curve, like the Nelson-Siegel, cubic splines etc. I would like to generate random yield to maturity data, that somehow reflects the common ...
3
votes
1answer
80 views

Is this a poorly written example, or could volatility in fact be negative?

I'm self-studying and I encountered the following example. It seems to suggest that volatility is negative in this example. I was under the impression that volatility can never be negative, both from ...
1
vote
1answer
50 views

How to simulate asset returns using student t?

I am currently trying to simulate an asset return using the student-t distribution, but I can't find how I should do this. I began with the Geometric Brownian motion and just changed in order that ...
4
votes
1answer
233 views

What is the distribution of Brownian Bridge over a given time interval?

I know from Karatzas & Shreve (1991) that a Brownian Bridge $B(t)$ from $a$ to $b$ on time interval $[0,T]$ satisfies: $$B(t)=a(1-t/T) + b*t/T + [W(t) - W(T)*t/T]$$ where $W(t)$ is a standard ...
1
vote
1answer
46 views

Is Poisson Disk Sampling an alternative to crude Monte Carlo and QMC?

I recently stumbled over Poisson Disk Sampling (here and the meditative version). I wonder if it is an alternative to crude or quasi Monte Carlo for very high dimensional integrals. It is not ...
1
vote
1answer
110 views

How does one calibrate a stochastic volatility model?

I will try to use SABR Model to price call options in FX market. What does it mean to calibrate the model? As far as my understanding of the Wikipedia article goes, it means to estimate the parameters....
4
votes
2answers
481 views

Lower bound of ITM Calls when computing Implied Volatility

Assuming the Black Scholes model and pricing formula of a European call option. Then, if the call is ITM, i.e. if $ln(\frac{S}{K})>0$, the $d_1$-term will go towards infinity as $\sigma$ goes to ...
0
votes
1answer
47 views

Pricing of convertible bonds

I'm trying to evaluate a convertible bond using the structural approach : the price of convertible bond is an option (call) on the firm value. We suppose that the firm value is equal to the sum of the ...
-1
votes
1answer
80 views

What mathematical knowledge is required for the CFA program? [closed]

My mathematical knowledge is lacking. I have a grasp of basic algebra and statistics. But I have not studied any calculus or linear algebra. In the CFA textbooks, I'm finding the formulas difficult ...
-3
votes
0answers
25 views

Risk management of all the types of risks [closed]

Explain how the various types of risks are managed clearly in financial institutions
0
votes
0answers
41 views

How inplement monte carlo simulation in bdt model ? (interest rate)

I want to implement monte carlo method in Black–Derman–Toy model to preview short interest rates. $$d\ln r_t=(\theta_t+\frac{\sigma'_t}{\sigma_t}\ln r_t)dt+\sigma_tdW_t$$ Someone can explain what ...
1
vote
0answers
54 views

$\mathbb{P}$ and $\mathbb{Q}$ probability measure/distribution interpretations

I'm trying to understand probability distributions implied from market prices and was reading through this reference explaining the interpretation of $N(d_1)$ and $N(d_2)$ in the log-normal vol Black-...
1
vote
1answer
250 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
0
votes
0answers
11 views

Inclusion of 0.50 in Finonacci retracement

Is there any rationale for 0.500 being included in the Fibonacci retracement sequence beyond it being a nice round number and the midpoint of 0.381 and 0.618? Clearly, it is not a member of $\frac{...
1
vote
1answer
41 views

Pricing of a Forward-start option in a Black-Scholes framework

I have read the pricing procedure of a Forward-start option in a Black-Scholes world in Musiela-Rutkowski, but I don't find their proof clear (pp. 195-6). Let me summarize their argument: Consider ...
0
votes
1answer
55 views

Derivation of the tangency / maximum Sharpe ratio portfolio in Markowitz Portfolio Theory? (2 risky assets)

I’m looking for a nice & detailed explanation for how to derive the formula for the weight of asset 1 in the tangency / maximum Sharpe ratio portfolio in Markowitz portfolio theory in a world with ...
0
votes
0answers
21 views

What does (a,b,c curve coefficients) mean for an Implied Volatility Parameterized Surface data? [closed]

I have a dataset which provides a, b, c curve coefficients for an Implied Volatility Parameterized Surface data for a ticker. What do they mean?
2
votes
1answer
80 views

Vasicek yield curve

Term structure is determined by a two-factor affine model (Vasicek). Using the monthly swap market data, we fit the model to match exactly the one-year and ten-year points along the swap curve ...
2
votes
1answer
38 views

Where to find historical time series data for number of new investor accounts

I am examining the impact of investor sentiment on the probability of stock market crises. I am constructing a composite measure of investor sentiment according to the methodology used in this paper ...
3
votes
2answers
94 views

Time Lag for Market Inefficiency

I recalled reading a academic paper that studied how long a market exploitation took to get priced into the market. I am trying to find that article. I remember it stating that the market priced in ...
0
votes
0answers
36 views

Volatility of CDS

I have calibrated a stochastic intensity CIR model to CDS data. The model reads $d \lambda_t = \kappa(\theta-\lambda_t)dt+\sigma \sqrt{\lambda_t} dW_t$ When calibrating the parameters I get ...
1
vote
0answers
20 views

How to calculate implied borrow rates from option chain information?

I am given information about a ticker with following options data: stock price, date, expiration date, strike price, call / put indicator, style (American or European), ask price, bid price, mean ...
0
votes
1answer
43 views

positive financial leverage in real estate

I had the understanding that leverage always helped improve cash on cash returns so long as the interest paid was less than the unlevered rate of return/cap rate. doing a quick back of the envelope ...
0
votes
0answers
22 views

Comparing Hedging Strategies

Say I am an American issuer, and I've issued some bond denominated in CAD. I've hedged the coupon by entering into an FX USD/CAD fixed for floating swap and I receive the fixed leg and pay floating, ...
3
votes
1answer
123 views

What is the probability that a OU process hits an upper barrier U before a lower barrier L?

What is the probability that the arithmetic OU process $dx_t= \theta(\mu-x_t)dt+\sigma dW_t$ hits barrier $U$ before hitting barrier $L$ when $L<x_0<U$ ?
2
votes
2answers
102 views

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa?

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa? whereas Vega is positively related with change in option price to change in stock price.
0
votes
0answers
28 views

Modelling nominal interest rates

What is the best model for nominal interest rates? ARMA, VAR, VEC, FAVAR, etc? I am a R user, so please advise me the most convenient R package to use as well. I intend to model US nominal interest ...
0
votes
0answers
6 views

Stationarity in first differences of CoVar

I'm currently in the middle of my master thesis and I can't get my head around a specific problem. I have the following process: where the $\Delta CoVar$ measure is calculated in two ways. First, ...
2
votes
1answer
100 views

Mean Crossing for Ornstein-Uhlenbeck

Suppose we have classic Ornstein-Uhlenbeck process. How can we calculate expected number (and variance too) of crossing mean value over the certain period of time? Say, if we have discrete OU process ...
0
votes
0answers
14 views

I have a test coming up and I could really use an explanation to this example problem

This test is on CAPM and portfolio optimization Suppose that investors A and B can invest in two risky assets and a riskless asset. The first risky asset has an expected annual return of 10%. The ...
3
votes
2answers
72 views

How to download all 10-K reports for all companies listed on S&P 500?

I am doing a regression analysis of all companies listed on s&p 500. It requires their 10-k reports. Where can I download all of them once?
3
votes
0answers
38 views

Relation between mean and variance of a portfolio in modern portfolio theory:

I hope that this is the right place to ask my question! Let a market with $N\ge1$ risky assets and denote by $(R_i,i=1,\cdots, N)$ their returns and $R$ the vector of these $N$ returns. In addition, ...

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