# All Questions

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### How is the formula for the VEV (VaR-equivalent volatility) in the PRIIP document derived?

The recent regulation (page 32) on PRIIPs requires to compute a VaR-equivalent volatility defined as $$\mbox{VEV}=\frac{\sqrt{3.842-2\ln \mbox{VaR}}-1.96}{\sqrt{T}}$$ Does anyone have an idea how ...
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### How to Neutralize Portfolio across economic sectors and industries using modified Alpha?

I am reading about Alpha and Portfolio Construction topic while reading i came across below point. Active management should be easy with the right alphas. Sometimes it isn't. Most active managers ...
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### 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 ...
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### Problem with derivating integral

I have a doubt : I know that if $x_{t}=\int_{0}^{t}\gamma(s)dW_{s}$ (with $W_{s}$ a brownian motion), we have : $dx_{t}=\gamma(t)dW_{t}$ What about if $x_{t}=\int_{0}^{t}\gamma(s,t)dW_{s}$. Do I have ...
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### Deming Regression

I am trying to test the linearity = interdependence or the non-linear (contagion) between Asian countries during the Asian crises using the fluctuation of the exchange rate. Is it relevant to use the ...
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### Boundary Conditions for Call Spread

I was just wondering if someone could verify whether these are the two boundary conditions for a Call Spread Black-Scholes PDE. The first one I have is: $max(S_{T} - K_{1}, 0) - max(S_{T}-K_{2},0)$ ...
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### logarithm and absolut value in returns of stocks

Well, i'm interested in model a GARCH for a serie. The original serie is $y_t$ (price index of a Stock Market), which has a unit root. So i create the returns: $x_t = ln(y_t) - ln(y_{t-1})$. Now, i'm ...
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### Relationship between interest rate and corporate bond yield?

I have been reading articles on liability driven investing, a technique used to increase the correlation b/w assets and liabilities of a pension plan. It appears that they use AA rated corporate bond ...
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I would like to download benchmark weights on a daily basis in R for NSE Stock Exchange. Do we have any package in R for the same. If yes, then please help out with example code.
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### Is this formula correct to estimate a knock out option price using monte-carlo?

I have a knock-out option with barrier $L>0$ and strike $K$ that pays at maturity $(S-K)_+$. So, positive payoff occurs only in case the price stays below the barrier over life of the option. I am ...
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### Pricing a log-contract using Monte Carlo

Having a payoff of log-contract defined as $$\Pi_T = \ln \left(\frac{S_T}{S_0} \right)$$ How would you express the MC-estimator for the price of this contract? The stock price dynamics here is ...
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### clarification to log-stock price formula

Having financial market with safe rate r and risky asset S with dynamics under physical measure P $$\frac{dS_t}{S_t}=\mu dt +\sigma dW_t$$ what is the log-stock price? Using Ito formula it is ...
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### How can factor certificates achieve constant leverage?

How does a bank which offers a factor certificate with unlimited maturity, e.g. a certificate which promises the holder to change in value in a constant proportion with respect to a change in the ...
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### 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 ...
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### Sharpe ratio and efficient portfolio

If I have a portfolio with sharpe ratio less than the sharpe ratio of the tangent portfolio, can I conclude something about whether or not it is efficient? If so, how/why?
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### 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 ...
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### The Dog That Did Not Bark?

I've been reading Cochrane's 2006 paper "The Dog that did not bark: A Defense of Return Predictability", but i am still struggling to understand what the dog was, and why it wasn't barking? If anyone ...
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### Update Daily price from yahoo in R

I am trying to update daily prices from yahoo via below R code, but code is not working properly and i am not getting any error as such. One can see the reference code at following link. ...
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### Pricing with-profit/smoothed bonus annuity using Black-Scholes

Would this be possible? Subsequently, would the pricing of such an annuity be somewhat similar to pricing a lookback option?
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### Tangency portfolio and CML - Why does it have the highest sharpe ratio?

In the book that I am studying, the tangent portfolio was defined as the regular efficient portfolio in the case with $n$ risky assets and 1 riskfree asset with the extra requirement that the ...
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### OTC Market Data

I am currently doing research on the OTC Markets (OTCQB, OTCQX). As far as I know, the only data available is end of day. The research will require tick level data. This leads me to two questions: ...
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I have read two definitions of the term an arbitrage opportunity in the literature*. Are they equivalent? Consider a single period market model over the measurable space $\Omega = \{\omega_1, \dots, ... 1answer 39 views ### Asset Pricing: What happens to the Risk-Free rate and the Equity Premium? What would a standard asset pricing model predict for the risk-free rate and the equity premium, if the volatility of consumption growth fell? My gut feel is that the equity premium should fall, but ... 0answers 63 views ### Intuitive way of calculating Option Prices I am trying to figure out a way to price options without using the black scholes model(at-least remove some dependency from it). I want to approximate the price of options in the Black Scholes world, ... 0answers 13 views ### The right scaling of input data in portfolio optimization I play around in R to get a better feeling for portfolio optimization and started with a very simple toy model. Already in this case I'm wondering about the following questions: Assume I have daily ... 1answer 53 views ### Accurately calculating Greeks for options near expiration I understand that when a vanilla European option is near expiry, the Theta calculated from BS formula is very inaccurate and almost meaningless for practical use. However, I'm not sure if other ... 2answers 38 views ### CAPM - Do I use start or end of period prices? If I use monthly price data in the standard CAPM, should I take the price at the beginning or the end of the month? What is the convention? Or does it not matter? Is there any literature that deals ... 1answer 42 views ### what % of stocks with +$1b market cap will double in 3 years on average historically?

If I'm looking to pick stocks that will double in 3 years, how do I figure out what is the likely universe that I'm choosing from? I just want a rough estimate of the universe given the market cap ...