# All Questions

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### CIR model, realistic parameters and usage

I'm currently working on SDE's, in particular with mean-reversion processes like CIR and Vasicek. The definition of the CIR model is dX_t = \kappa(\theta-X_t)dt + \sigma \sqrt{X_t}...
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I follow the course "Mathematical topics in finance" from MIT courseware. I opened R and rendered Dr. Kempthorne's Case Study 3: Time Series from September 30, 2013 I am able to render the code and ...
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### Implied Volatility in Heston Model

recently I started reading the interesting book about option pricing in the stochastic volatility world from Lewis. He gives very interesting and detailed insights about this topic in general. However ...
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### Why do banks offer options? [closed]

I have only taken one introduction class in finance. However we came along opinions, their pricing, etc. We only contemplated being the buyer of a option. If everything works for you apparently you ...
81 views

### Interview questions pictures [closed]

I got this questions which is quite interesting, I am in a museum, there are 100 rooms (numbered from 1 to 100) in this museum and each room has a picture in it. I go visit each room in the ...
72 views

### residual correlation remains after seasonal lag added

I'm attempting to model operating margins and a time plot indicated that the series may follow an autoregressive process. I initially fitted data to an AR(1) model and it appeared that residual ...
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### State Variables in a Bellman Equation

Can anyone explain to me exactly what a state variable is in a Bellman equation?? $$V(x,y)=max\space u(c)+\beta V(x',y')$$ In some models with capital savings it's the capital $k_t$ you walk into ...
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### European call option delta and maximum principle

From comments, the maximum principle for parabolic PDE can be used to show that the European call option delta cannot be greater than 1. I am looking forward to such derivations.
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### How do one solve $\int_t^T \exp[\int_0^u-( r-\delta_s)ds] dW_u$? Double integral with general deterministic function $\delta(t)$

How do one solve $\int_t^T \exp[\int_0^u-\left( r-\delta_s\right)ds] dW_u$ ? $\delta(t)$ is a general deterministic function. $r$ is constant.
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### $E[F_T] = F_0 \ \rightarrow \ \text{or} \ \leftarrow \ p = \frac{1-d}{u-d}$?

From Ch 12 in Hull's OFOD, we compute the risk-neutral probabilities for a futures contract: Later in Ch 17, futures options are valued, and we have the same result: In relation to ...
239 views

### Pricing when arbitrage is possible through Negative Probabilities or something else

Assume that we have a general one-period market model consisting of d+1 assets and N states. Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with ...
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### Is the European call option delta an increasing function of the spot?

In the Black-Scholes' setting, the delta hedge ratio of a European call option is given by $N(d_1)$, which is an increasing function of the underlying equity spot $S_0$. Does this property hold ...
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### Magnitude of Predictors on Logistic Regression

We are using logistic regression for calculating delinquency. We know what the major predictors are, but we don't know how to quantify the impact of each of the major predictors. We know how to rank ...
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### Pricing of American Deriviatives

Reading the book by Andrea Pascucci "PDE and Martingale Method in Option Pricing" I am struggling with a very simple issue. Suppose we want to find the price of an American derivative $X$ in an ...
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### Using Forward or Spot rates for NPV?

I have to calculate the NPV for Capital Budgeting in a project with annual cash flows discounted by a risk - free interest rates 1.Instead of using a constant interest rate, should it better to use ...
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### Effect on variance of change of measure

My current understanding: (a) changing the probability measure of a diffusion process does not change the variance. (b) for a general stochastic process the variance may change. Please confirm whether ...
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### BLS v2 API took 20+ minutes to publish data where is immediate data available?

First, I should state that I built a Java program that uses HTTP Components to keep in sync with server time for my broker. Once 7:29:59 comes around the program ...
619 views

### How many monte carlo runs do I need for pricing a Call?

I have to price several calls using Monte Carlo. Obviously, there is a huge tradeoff between the number of runs and the fair price of the call option. I know I can check how the approximation changes ...
77 views

### Brownian motion. Solve stoc. integral by using Ito's lemma

I want to show that following statement is true by using Ito's lemma to solve stochastic integrals: I define the functions in Ito's model: a()=0, b()= (2wt-2)^2. f(t)=Integrate[(2wt-2)^2] Then df=(b^...
106 views