# All Questions

8k views

### Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
2k views

### How to update an exponential moving average with missing values?

Say you have an Exponential Moving Average being continuously updated over a time series using 1-second-long time periods. What should happen if there is no value for the next second, e.g. there were ...
3k views

### Difference between google finance and yahoo finance?

I am wondering about the huge differences of the data provider google finance and yahoo finance. I am interested in the monthly data from adidas listed on xetra. In google: ETR:ADS and in yahoo ...
14k 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 ...
31k views

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 ...
2k views

### Are two identical time series cointegrated?

I did cointegration test on two identical time series, and the result shows that they are not cointegrated, but intuitively, I think they are. Can anyone share some thoughts on this? Thanks!
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 ...
955 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 ...
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, ...
1k views

### HFT - How to define and measure latency?

I have read and heard a lot about latency. But I can't find any solid information that explains how latency is defined and measured. When people say they have achieved millisecond or nanosecond ...
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 ...
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 ...
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 ...
265 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 ...
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 ...
678 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 ...
733 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 ...
444 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 ...
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 ...
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 ...
314 views

### How does one estimate the probability of the Fed increasing its benchmark rate based on Fed funds futures?

How was this 67% probability calculated from Fed funds futures? Fed funds futures show a 67 percent chance the central bank will increase its benchmark rate by year-end from virtually zero, ...
102 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 ...
904 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 ...
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. ...
404 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 ...
190 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 ...
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 ...
532 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 ...
149 views

### Option prices in Bates SVJ model?

In this [post] discussed the European put and call price formulas under the Heston Stochastic Volatility model. There exists an important extension of Heston model to include diffusion jumps, known ...
142 views

### Inconsistent Definition of Arbitrage in Bjork?

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ what seems to be 2 inconsistent definitions of arbitrage: The first definition is for the single period Binomial model The ...
366 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 ...
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 ...
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 ...
214 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 ...
181 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 ...
617 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 ...
630 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 ...
423 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, ...
143 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 ...
232 views

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

What are the formulae for d1 & d2 using a Laplace distribution?
143 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 ...
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 ...
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 ...
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?
598 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 ...
15k 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 ...
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 ...
3k views

Everyone seems to agree that the option prices predicted by the Black-Merton-Scholes model are inconsistent with what is observed in reality. Still, many people rely on the model by using "the wrong ...