0
votes
0answers
40 views

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 ...
0
votes
0answers
14 views

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 ...
0
votes
1answer
43 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 ...
1
vote
1answer
123 views

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 ...
0
votes
0answers
13 views

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 ...
2
votes
1answer
103 views

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: $max(S_{T} - K_{1}, 0) - max(S_{T}-K_{2},0)$ ...
0
votes
1answer
39 views

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 ...
0
votes
2answers
69 views

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 ...
0
votes
0answers
19 views

How to Download Benchmark Weights in R on daily basis?

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.
1
vote
1answer
64 views

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 ...
3
votes
1answer
90 views

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 ...
3
votes
1answer
56 views

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 ...
0
votes
0answers
12 views

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 ...
0
votes
1answer
42 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
1answer
31 views

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?
1
vote
1answer
45 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
1answer
67 views

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 ...
0
votes
0answers
66 views

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. ...
1
vote
0answers
18 views

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?
1
vote
1answer
38 views

What is the limiting distribution of loss portfolio?

I am working through this paper on Vasicek's portfolio loss distribution. On page 3 he mentions that by the law of large numbers, $$\lim_{n\to\infty}\sum_{k=0}^{\lfloor nx \rfloor} ...
1
vote
2answers
45 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?
0
votes
1answer
23 views

Is it possible to find / estimate the volatility surface of non-listed index options?

I have 3 QNET options (european, 2 puts, 1 call, all same expiry, different strikes) that the broker is pricing clearly off a volatility surface. Bloomberg only carries historical volatility and I ...
0
votes
1answer
32 views

What is Estimation Risk - VAR Backtest

Simple Question. Can someone explain please: What is Estimation Risk in Value at Risk Backtesting
1
vote
0answers
59 views

Quadratic variation

The following question is more math than quant, but since it arises from a mathematical finance textbook, I've figured the good people in this sub might be able to help me. So here goes. In the 3rd ...
0
votes
1answer
33 views

S&P 500 and Dow Jones from Google API

How can one query the Google Finance API for Dow Jones and S&P 500 values? The queries for Dow Jones and S&P 500 will result in error: ...
1
vote
1answer
64 views

Does the unconditional variance implied by a GARCH equal the sample variance?

In the MATLAB default settings for GARCH estimation they say "presample conditional variance is the sample average of the squared disturbances of the offset-adjusted response data y". Am I right in ...
0
votes
1answer
33 views

Does the starting currency matter in triangle arbitrage?

Say I have an FX arbitrage opportunity by doing a transaction like: EUR -> USD -> YEN -> EUR It seems to me like the (exact) same profit can be realized by starting the transaction in USD and doing: ...
1
vote
2answers
54 views

How to Calculate Minimun total Risk?

Is it possible to calculate Minimum Total Risk mathematically for below problem. ...
0
votes
0answers
20 views

Dynamic programming problem with dimension over 1000.

I am working on a dynamic programming problem with dimension over 1000. In this past, there exist methods like Smolyak algorithm and Adaptive sparse grid method to solve dynamic programming problem ...
2
votes
1answer
48 views

Yahoo Finance Implied Volatility Calculation

On 5/16/16 AXP stock closed with a price of 64.07. Yahoo Finance reports an implied volatility of 20.58% for this out of the money call option: ...
0
votes
1answer
41 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.
1
vote
0answers
31 views

Arrow-Debreu Equilibrium Pricing

I have this problem in asset pricing that I don't know how to solve. Here it is: Consider an economy with a complete set of Securities and $N$ states of the world Tomorrow. Assume that there are two ...
0
votes
0answers
30 views

Murex and Calypso framework

I have been working on Murex and Calypso trading system for several years , front to back , I am facing a lot of question kind of : which software is better ? I can confirm to anyone interested in ...
1
vote
1answer
37 views

SKEW Index as parameter in lognormal distribution

The CBOE publishes a SKEW index, which is SKEW = 100 - 10*S, so from the index itself we can get S = (SKEW - 100)/10. I just ...
0
votes
0answers
21 views

Fund Separation Theorem for Performance Seeking Portfolio

Can someone explain this statement? "The beauty of the fund separation theorem is that the performance seeking portfolio mandate is the same for all investors"
1
vote
2answers
100 views

How many years of historical data is require for Portfolio Optimization?

I would like to know about below questions. How many years of historical data is require for Portfolio Optimization in R programming. Thanks Atul
0
votes
1answer
39 views

example Hamilton-Jacobi-Bellman Equation - clarification of $dX_t$ derivation using $\pi_t$, $\Pi_t$

I have a market with safe rate r and risky asset S $$ \frac{dS_t}{S_t}=(r+Y_t)dt+\sigma dW_t \quad \quad (1)$$ $$ dY_t = - \lambda Y_t +dB_t \quad \quad (2)$$ where W, B are Brownian Motions with ...
0
votes
2answers
28 views

How to assign n day target variables in machine learning

I am trying to forecast future price using supervised machine learning. My logic is to take open and close price from t, t-1, t-2 and t-3 period to predict future close price in the period t+1,t+3 ...
1
vote
1answer
39 views

optimal strategy problem (using Jensen's inequality)

I have a strategy in Samuelson model with zero safe rate defined as $$Z_t^{\Pi}=\frac{X_t^{\Pi}}{X_t^{\rho}} \quad \quad (1)$$ where $$\frac{dX_t^{\Pi}}{X_t^{\Pi}} = \mu \pi dt + \sigma \pi \ dW_t ...
1
vote
1answer
39 views

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 ...
1
vote
1answer
37 views

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: ...
4
votes
2answers
82 views

Two definitions of arbitrage in finite markets

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, ...
0
votes
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 ...
0
votes
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, ...
0
votes
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 ...
0
votes
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 ...
0
votes
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 ...
0
votes
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 ...
0
votes
1answer
20 views

Heteroskedasticity and significance of parameters

I am doing a regression analysis and my variable of interest turns out to be significant at the 5% level, but the model contains heteroskedasticity which can not be mitigated (using Box-Cox, Feasible ...
0
votes
2answers
28 views

Correlation of Asynchronous Brownian Motion

I am trying to use the closing prices of the S&P 500 and the Nikkei Index to see how they are correlated (assuming they are exactly 12 hours apart). In order to test my method, I have generated ...

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