6
votes
3answers
228 views

Can Gaussianity of returns depend on the time frame?

I would be interested in knowing if the fact that returns are Gaussian is disproved on all time frames, or if, for example, the 5 minute intra-day time frame could exhibits Gaussian returns assuming ...
2
votes
1answer
120 views

How to hedge a put under the Black-Scholes model?

To hedge a call, one would invest the option price proceeds into $\Delta_t*S_t + B_t = c_t$. (ok) However, a put has negative delta, so I would short $\Delta_t*S_t$ and invest ...
0
votes
1answer
229 views

Implied volatility interview question [closed]

If an implied volatility of an out of the money call option goes to infinity,what happens to the delta of the said call option?
-1
votes
1answer
43 views

Monthly Return Net of Fees [closed]

How can I calculate the monthly return net of fees if the fee is annual?For example, if every year there is a 20% incentive fee, is there a formula to adjust the return of each month to compensate for ...
5
votes
1answer
129 views

How to tackle this exercise about Ito's formula?

In the following exercise, I can't get started on question 2) as I am not sure what to do when there is an integral inside: Could you help me out?
0
votes
0answers
14 views

daily feed for ETP delistings, redemptions and listings

I am looking for a feed or website that will post new exchange traded products(ETF, ETN, ETC exc..) launches, liquidation, redemptions or any other related events. I found one at etf.com however it ...
0
votes
0answers
44 views

Benchmarking option pricing under stochastic interest rates

I priced a long-term option (10 or 20 years) using two different models: one assumes constant interest rates, the other assumes stochastic interest rates. Is there a way (e.g. a benchmark) to ...
2
votes
0answers
45 views

replicating strategy three step binomial

I am having some trouble setting up a replicating strategy for a call option with a three step binomial model (discrete). I have no trouble doing this in a two step binomial model by backward ...
1
vote
1answer
60 views

Regression model syntax

I'm following the methodology outlined in Developing High-Frequency Equities Trading Models. On page 27, the author outlines an OLS regression model to obtain beta coefficients. The model is defined ...
1
vote
0answers
28 views

Disaggregating stock performance and dividend yield

I modeled the performance of several portfolios with adjusted close data and would now like to understand how much of it is driven by changes in stock price and dividend payouts. I have all the data ...
2
votes
1answer
113 views

Completeness and Hedging Question

A question in some private notes I'm struggling to work through (exam. prep.). (iii) is where I hit a wall with my understanding & I'm lost thereafter. Any help/clarification gratefully received. ...
4
votes
1answer
102 views

What are “Autoquotes”?

I'm reading a 2008 JoFMarkets paper by Shkilko et al. with title "Locked and crossed markets on NASDAQ and the NYSE" in which the authors investigate the determinants of locked and crossed markets. ...
2
votes
2answers
71 views

What interest rate should I use for testing the covered interest parity?

I am doing an empirical test of the CIP from the recent financial crisis between Canada and the United States. I am using 1,2,3,6,12 month forwards (monthly data). What interest rates should I use? I ...
2
votes
2answers
79 views

Portfolio Return Contribution by Sectors

I have a table containing the following fields: Date, PortfolioReturn, CashReturn, Sector1Return,...,Sector10Returns 'PortfolioReturn' is the sum of CashReturn + return contributed from 10 market ...
3
votes
2answers
159 views

Why/How does a hedged portfolio make profits?

This is probably a very easy question but I am new to the field and couldn't find an answer. Assuming that I am building a hedged portfolio with a long option and going short delta on the underlying. ...
4
votes
2answers
95 views

Fama French model-small market beta (weird)

I am analyzing if good governance portfolios outperform bad governance portfolios. After dividing firms with good governance into one pf and bad ones into another for European companies I tried to run ...
9
votes
3answers
360 views

Why do people always seek finite-variance models for option pricing

For the purpose of getting fatter tails than the Guassian, I have seen people for example use $\alpha$-stable processes to model the stock. But in that case they end up using 'tempered' versions of ...
0
votes
1answer
226 views

“Hedging” a put option, question on exercise

I have a question on the following exercise from S. Shreve: Stochastic Calculus for Finance, I: Exercise 4.2. In Example 4.2.1, we computed the time-zero value of the American put with strike ...
1
vote
2answers
151 views

Variable Drift Ornstein–Uhlenbeck Process

The Ornstein–Uhlenbeck process is defined as the stochastic process that solves the following SDE: $dx_t = \theta (\mu-x_t)\,dt + \sigma\, dW_t$ where $\theta>0$, $\mu$ and $\sigma>0$ are ...
1
vote
1answer
71 views

FX Portfolio Volatility Targeting

If I have 3 different currency trades (ex short EURSEK, short NZDUSD, long USDJPY), how do I size each trade if I wish to allocate risk equally in order to target a 12% portfolio volatility (allowing ...
2
votes
1answer
24 views

Calculating the rate of return over a year then the data for a year before does not exist

I am trying to find the growth rate of a stock over a given year. Let's say I wanted to find the growth rate from today, June 11, 2015 to June 11, 2014. This is easy enough when you have perfect ...
3
votes
0answers
110 views

Parametrizing the Radon Nikodym

The following is an excerpt from the dialogue in the book "Counterparty Risk and Funding - A Tale of Two Puzzles", regarding the statistics such as the volatility and correlation estimation under the ...
2
votes
3answers
234 views

Physical or Real-world Probability Measure

For counterparty credit risk, in particular, for potential future exposure computation, people use the real-world probability measure to evolve the underlying risk factors. My question is that whether ...
0
votes
2answers
85 views

Reproducing levels when PCA has been done on changes

I want to use PCA for rich/cheap analysis of interest rates. For this I did the PCA on the time series of daily difference in interest rates, which is stationary. I cant do pca on levels, as they are ...
2
votes
3answers
103 views

Books on Market Risk for practice problems

Are there any books with practice problems for Market Risk, with special emphasis on vanilla and exotic options? Or should I look into old exam papers from FRM as sold by Kaplan/GARP?
3
votes
1answer
160 views

Value of European Call equals Value of American Call, Question on Explanation/Proof

I am reading S. Shreve, Stochastic Calculus for Finance, Vol. I. There he proves that American Call Options have the same value as European Call Options. In the proof he uses that for a Call option ...
0
votes
1answer
83 views

Swiss Zero-Coupon Bond Yield Curve Data

I am trying to access the Swiss Zero-Coupon Yield Curve Data. I know that the Swiss National Bank provides this data, as noted on the 8th Page of this paper under Section 3.2. However, I am for the ...
3
votes
2answers
238 views

Basic LIBOR curve question

I'm new to the quant finance and have a very basic question about LIBOR curve. LIBOR is published every day for 4 different tenors (1M, 3M, 6M, 1Y), and each rate means how much annual interest ...
1
vote
0answers
172 views

Using cross-sectional factor model (BARRA type) returns in a time series factor model (Fama-French type)?

This may be seen as a follow up question for the previous discussion on time-series vs cross-sectional factor models: Which approach to estimating fundamental factor models is better, cross-sectional ...
3
votes
1answer
112 views

Negative Interest Rate & Basis Models

Since markets are showing negative interest rate, I'm forced to find a model that can catch this behaviour. Because of that, I have implemented and calibrated the G2++ (or the Hull-White 2 Factors) ...
3
votes
1answer
128 views

Distribution of Black Scholes call option price at time 0<t <T

Does anyone know how to find the probability law (distribution) under P* of a Black Scholes Call Option price $C_t$ for $0 < t < T $? (Under P*, $ dC_t = \frac{\partial c}{\partial s}\sigma S_t ...
2
votes
1answer
210 views

Black-Scholes under stochastic interest rates

I'm trying to implement the Black-Scholes formula to price a call option under stochastic interest rates. Following the book of McLeish (2005), the formula is given by (assuming interest rates are ...
1
vote
0answers
54 views

Initial values for Heston Model calibration

I'm doing a Heston model in Matlab using simple Monte Carlo simulations (5.000 paths and 2 steps per day, simulating 360 days). When I try to calibrate the Heston parameters using fminsearch it takes ...
4
votes
1answer
505 views

Why using the swap curve as riskfree rate and no longer gov bonds?

I recently had an interview where I was asked what to use as risk-free rate. In all my textbooks it was always the US treasury yield curve. But they said no its now the "swap curve". Why is the swap ...
1
vote
2answers
58 views

Calculate single cashflow at maturity for a Total Return Inflation swap (zero coupon)

I'm a newbie to the world of swaps. If I have a Total Return Inflation Swap (Receive CPI, Pay Fixed Zero Coupon) Based on CPI Index starting level = 236 Notional = 100,000 Term = 5 Years How can I ...
1
vote
2answers
31 views

Compound Interest Calculation (Years + Months)

My question is with regards to the calculation of "Compound Interest". I have the formula below where I would get an answer to the total value of the investment over a period of "years". $A$ = ...
1
vote
1answer
114 views

Using Spot Rates to construct Zero-Coupon Bond Yield Curve

I am just trying to get an explanation as to why Spot Rates can't be used to create a yield curve for Zero-Coupon Bonds? Or if they can, would it involve Bootstrapping? Thanks
3
votes
1answer
114 views

Combining modern portfolio theory and Kelly betting?

I'm using modern portfolio theory to compute the frontier of efficient portfolios. I'd like to pick the best one in the spirit of Kelly betting, ie. maximising expected growth. I'm looking for a ...
2
votes
1answer
65 views

Export security description data from bloomberg into excel

I have the cusip of about 300 bonds. I want to retrieve the security description from bloomberg and then export it into excel. Does anyone have any tips as to how to accomplish this?
1
vote
2answers
262 views

Option arbitrage with dividends?

If a stock pays a discrete dividend, the stock price falls by the amount of the dividend. There is no arbitrage opportunity from this predictable jump, because the investors receive the same amount of ...
0
votes
1answer
141 views

Looking for a definition of financial entropy

In Science, Entropy is generally considered to be the irreversibility of stuff. Google defines entropy as: lack of order or predictability; gradual decline into disorder The 'gradual decline in ...
0
votes
1answer
59 views

Looking for the conventions for EONIA swaps used to define EONIA swap rates

I'm trying to recreate some historical curves using EONIA swap rates. Unfortunately I can't find a concrete specification for the swaps. Without knowing if there are intermediate coupon payments, I ...
4
votes
1answer
62 views

Do Regional Central Banks have API's?

Do Regional Central Banks such as the Federal Reserve and ECB have API's to access their Statistics? I've been searching all day and haven't been able to find them. They seem to provide most of their ...
0
votes
0answers
10 views

FInding the Delta in margin based on Pricing, Unit Types, Product Mix, and Sale Types

Is there a way to find the change in margin based on the the changes in pricing, unit types, product mix and sale types? Is there a standard formula we can use? We have tried ...
3
votes
2answers
165 views

Forecasting problem with Geometric Brownian Motion in Wolfram Mathematica

I'm a full time undergraduate student from Peru, and I'm trying to use the Geometric Brownian Motion example used in the help section from Wolfram Mathematica in order to forecast future stock ...
0
votes
1answer
85 views

API that provides Zero Coupon Bond Yield Curves?

Would anyone know and API or Database where one could access Zero Coupon Bond Yield Curves? Also, is it wrong to use Coupon Paying Bonds Yield Curves and then zero-finding and then bootstrapping to ...
4
votes
2answers
128 views

American put for negative interest rates

It is often explained, that the rule of thumb for exercising American options is to check when the benefit from the interest rate (sell the stock earlier, get the cash, put in the bank) is higher than ...
5
votes
1answer
130 views

Simulate (imaginary) asset prices using random numbers that follow a Frank Copula

I didn't understand how to simulate asset prices by using non normal random numbers. I am assuming that it would be incorrect to use the standard Geometric Brownian Motion, since it is based solely ...
2
votes
4answers
210 views

How to short an option?

It appears to me that retail investors can only buy calls and puts, but not short them through any standardized way (except maybe borrowing the option from a friend ;) ). Is that correct, or how can ...
0
votes
0answers
43 views

Black Scholes with Dilution

I've seen two ways to account for dilution when valuing a European option using Black Scholes. I'm not sure which is the correct way and why these methods differ. The two ways I've seen are: 1) ...

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