12
votes
6answers
2k views

Why does the VIX index have *any* correlation to the market?

It appears that the log 'returns' of the VIX index have a (negative) correlation to the log 'returns' of e.g. the S&P 500 index. The r-squared is on the order of 0.7. I thought VIX was supposed to ...
11
votes
1answer
928 views

So many volatility models. Any comparisons of them?

Are there any papers that make an explicit contrast/comparison of the following (or other) vol models in terms of the suitability for addressing some empirical problem? Wavelet multiresolution ...
11
votes
11answers
28k views

What is the difference between Option Adjusted Spread (OAS) and Z-spread?

I am preparing for the CFA level 2 exam, I got confused by the concept Z-spread and OAS. When a call option is added to a bond, since it is not favorable to the bond buyer, they would require more ...
7
votes
5answers
3k views

How to get greeks using Monte-Carlo for arbitrary option?

Let's assume I have an arbitrary option that I can price using Monte-Carlo simulation. What is the general approach (i.e. without relying on specific option type) to calculating the greeks in this ...
7
votes
2answers
4k views

What causes the call and put volatility surface to differ?

I currently have a local volatility model that uses the standard Black Scholes assumptions. When calculating the volatility surface, what causes the difference between the call volatility surface, ...
7
votes
4answers
1k views

Library to solve optimization problems

I'm working with C# and I start being bored writing optimization algorithm. Do you know of any free library containing this sort of algorithms. In particular I'm cutrently working with Semidefit ...
5
votes
7answers
2k views

Recommendation for a book on CVA/Credit Risk and PD/LGD/EAD modeling?

I need suggestions for some good books on the following topics: Credit Value Adjustment (CVA) / Credit Risk Probability of Default / Loss-Given-Default / Exposure-At-Default modeling Any pointers ...
4
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 ...
2
votes
2answers
6k views

What is the Swap Curve?

What is the so-called Swap Curve, and how does it relate to the Zero Curve (or spot yield curve)? Does it only refer to a curve of swap rates versus maturities found in the market? Or is it a swap ...
2
votes
2answers
258 views

Shortcomings of generalized Brownian motion for asset price modelling

I'm simply interested on hearing some views on which shortcomings arise by using the (multidimensional) SDE $$dS(t)=S(t)\alpha(t,S(t))dt+S(t)\sigma(t,S(t))dW(t)$$ as a model for asset prices. I know ...
7
votes
2answers
1k views

How to calculate the most realistic historical option prices with additional publicly available parameters

This is a follow up question of this one. My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes. The ...
5
votes
1answer
639 views

Multi Fractals Models

From a quant point of view, how would you explain Multi Fractals Models in few words ? I have the level to take these courses, but won't be able to do it next year, so I want to know what I am ...
5
votes
1answer
709 views

Trade execution in HFT - role of quants

What is the role of quants in trade execution in high frequency trading? AFAIR in "normal" trading trade execution is considered a very mundane task. What role can quantitative modelling play in trade ...
4
votes
1answer
274 views

The effect of negative interest rates on derivative pricing

I am trying to get an overview of the impact on negative interest rates on financial products (in general). For the time being I distinguished the following products Vanilla options Exotic options ...
3
votes
1answer
3k views

GARCH model and prediction

I have a question about the prediction of volatility and returns of a time series. Basically it is a question about prediction in the ...
11
votes
3answers
3k views

How are limit orders selected from the order book?

I'm sure there is a simple answer to this but I haven't had any luck with searches. I'm just wondering when someone places a market order which order(s) from the limit order book are selected to fill ...
6
votes
1answer
99 views

FTAP a-la Harrison, Kreps and Pliska

I was reading the papers co-authored by Harrison, Kreps and Pliska, that initiated the formal research on the connection between pricing, martingale measures, arbitrage and completeness. I have some ...
5
votes
3answers
850 views

Data Synchronization

I'm working on market trends. I have daily prices for 33 assets from different markets. I was wondering if there is a way to cancel the effects of different opening/closing times. I have been told ...
5
votes
2answers
1k views

How to make the final Interpretation of PCA?

I have question regarding final loading of data back to original variables. So for example: I have 10 variable from a,b,c....j using returns for last 300 days i got return matrix of 300 X 10. ...
5
votes
1answer
383 views

How to value a floor when a loan is callable?

Certain bank loans pay a spread above a floating-rate interest rate (typically LIBOR) subject to a floor. I would like to find the value of this floor to the investor. Assume for this example that ...
1
vote
2answers
164 views

Which is the correct definition of arbitrage?

Spin-off from here. In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ 2 inconsistent definitions of arbitrage, which is correct? The first definition is for the single period ...
6
votes
1answer
2k views

Implied dividend estimation

I am looking at two different ways of estimating the expected / implied dividends from market data. 1. Dividend futures I know that this asset class is not very liquid and might not be ...
5
votes
1answer
442 views

Risk-neutral pricing in incomplete markets

I know that in order to use the risk-neutral valuation principle, that is, pricing options as their payoff function under a risk neutral measure, one has to have a complete market. But in the ...
3
votes
2answers
351 views

Forcing price to rise or fall by high volume buying and shorting

Is there an a name for the approach / strategy to artificially move a price either up or down by high volume buying or shorting. ie. Buying a large (say 5%) of a stock very quickly, thus ...
3
votes
3answers
1k views

What are the limits of bond portfolio immunization against interest rate changes?

I'm currently reading through an article on bond portfolio immunization against changes in the interest rate. I learned that the immunization can be done against instant changes in interest rate ...
2
votes
1answer
198 views

How to apply Levenberg Marquardt to Max Likelihood Estimation

In this paper on p315: http://www.ssc.upenn.edu/~fdiebold/papers/paper55/DRAfinal.pdf They explain that they use Levenberg Marquardt (LM) (along with BHHH) to maximize the likelihood. However as I ...
2
votes
1answer
1k views

Modelling VIX Futures for risk management

I would like to model VIX futures. The aim is not pricing but risk management. Thus I want to get risk measures like volatility right and be able to accurately calculate correlations when the VIX ...
1
vote
1answer
504 views

Implied state price density (Question 1 - derivation of the formula)

I came upon the term "implied state price density" in a couple of papers. As far as I understand the concept one basically tries to extract the "pricing density" from the market data. For the sake ...
0
votes
1answer
135 views

Get distribution for aggregate loss using Monte Carlo

I am given two data sets containing dates and losses (in some currency). Given a distribution for the amount of losses and an (a,b,0) distribution for frequency of losses, how can I use Monte Carlo ...
4
votes
1answer
403 views

What is the relative performance of hard-to-borrow securities?

Is there any research on the equity return performance of hard-to-borrow securities? Many shops will simply screen for hard-to-borrow and eliminate these names from their short book. Anecdotally, ...
2
votes
2answers
61 views

Any package to run VAR-GARCH or VECM-GARCH models in R?

I need to estimate a multivariate VECM-GARCH (or simply VAR-GARCH) in R. Browsing on the internet, I did not find anything yet. Do you know if such kind of packages exists? Please, note that a BEKK ...
2
votes
1answer
232 views

What are $d_1$ and $d_2$ for Laplace?

What are the formulae for d1 & d2 using a Laplace distribution?
2
votes
1answer
142 views

Can determinant of liquidity risk be used as a dimension or measure of liquidity risk

Can I take liquidity risk determinant as a dimension of it in order to examine the impact of liquidity risk on performance of banks? For example in a literature, Tangibility i.e., ratio of fixed ...
2
votes
1answer
222 views

What is the difference between these two optimization procedures?

In this portfolio optimization utility (and others), mean return, standard deviation and correlation among assets are required inputs. http://finance.wharton.upenn.edu/~stambaugh/portopt.html At ...
2
votes
0answers
85 views

Good Environment, Social, and Governance Indicators to correlate with financial performance of PE

I am trying to see if there is a correlation between the Environment, Social, and Governance (ESG) performance and the financial performance of Private Equity (PE) funds. Are there any suggestions ...
1
vote
1answer
612 views

Two prices pass the cointegration test but there is a trend. How to check stationarity?

Below is a spread built with two ETFs that pass the cointegration test i.e. Adjusted Dickey Fuller, adfTest(type="nc") in R's fUnitRoots with a p-value < 0.01. The red line is the trendline. What ...
1
vote
1answer
286 views

Reading recommendation on using statistical analysis in online fraud prevention [closed]

Can you please recommend good reads on statistical analysis related to online fraud detection and prevention of account abuse?
0
votes
1answer
17 views

Legitimate input parameters for Nelson Siegel Svensson model

I had previously asked this question and have come to better understand the answer with regards to setting the input parameters for the Non-Linear Optimization problem that provides the NSS ...
-1
votes
1answer
553 views

Calculating arbitrage- S&P 500 stocks vs S&P 500 Index future?

How exactly would I go about investigating whether the S&P 500 stocks were currently over-valued compared with the price of the S&P 500 Index futures contract? Is it just a case of taking each ...
36
votes
9answers
14k views

How useful is the genetic algorithm for financial market forecasting?

There is a large body of literature on the "success" of the application of evolutionary algorithms in general, and the genetic algorithm in particular, to the financial markets. However, I feel ...
38
votes
11answers
15k views

Switching from C++ to R - limitations/applications

I've only recently begun exploring and learning R (especially since Dirk recommended RStudio and a lot of people in here speak highly of R). I'm rather C(++) oriented, so it got me thinking - what are ...
30
votes
6answers
4k views

What are the popular methodologies to minimize data snooping?

Are there common procedures prior or posterior backtesting to ensure that a quantitative trading strategy has real predictive power and is not just one of the thing that has worked in the past by pure ...
12
votes
7answers
7k views

Except Zipline, are there any other Pythonic algorithmic trading library I can choose?

Except Zipline, are there any other Pythonic algorithmic trading library I can choose? Especially, for backtesting?
11
votes
6answers
3k views

References for developing an automated trading system?

I am looking for references on the architecture of automated trading systems and the trading algorithms behind them. I am more interested in system development than analysis. A couple of books I ...
19
votes
3answers
5k views

What types of neural networks are most appropriate for trading?

What types of neural networks are most appropriate for forecasting returns? Can neural networks be the basis for a high-frequency trading strategy? Types of neural networks include: Support Vector ...
17
votes
7answers
10k views

Python library for Portfolio Optimization

Does anyone know of a python library/source that is able to calculate the traditional mean-variance portfolio? To press my luck, any resources where the library/source also contains functions such as ...
31
votes
7answers
2k views

Lévy alpha-stable distribution and modelling of stock prices.

Since Mandelbrot, Fama and others have performed seminal work on the topic, it has been suspected that stock price fluctuations can be more appropriately modeled using Lévy alpha-stable distrbutions ...
18
votes
5answers
8k views

How to identify technical analysis chart patterns algorithmically?

I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but I'm wondering if there is a way to algorithmically identify the ...
18
votes
8answers
5k views

Training set of tick-by-tick data?

I'm looking to find a free source of tick by tick data (<1sec) for training purposes. It doesn't need to be longer than a day, and I don't care what instrument, or exchange, or time it is. I just ...
18
votes
8answers
4k views

What kind of basic framework or application do you use to run your trading algorithms?

I heard about MetaTrader from http://www.metaquotes.net. Is there any other framework or program available? Do you use different software for backtracking and running your trading algorithms? Thank ...

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