2
votes
0answers
151 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
0
votes
0answers
90 views

Stock Price Question

Can anyone show me how to answer this please? A stock has beta of 2.0 and stock specific daily volatility of 0.04. Suppose that yesterday’s closing price was 95 and today the market goes up by 3%. ...
3
votes
3answers
213 views

Is the number of outstanding shares a stationary series?

I'm doing a panel data analysis where the log of the freefloat number of outstanding shares is one of the explanatory variables, but it fails the Augmented Dickey Fuller and Person Phillips unit root ...
4
votes
3answers
1k views

Simulating the short rate in the Hull-White model

What is the best way to simulate the short rate $r(t)$ in a simple one factor Hull White process? Suppose I have $$ dr(t) = (\theta(t)-\alpha r(t))dt+\sigma dW_t $$ where $\theta(t)$ is calibrated ...
2
votes
2answers
198 views

Is there any academic material regarding robust optimization with fixed transaction costs?

I'm looking to piece together a robust optimization model that handles robust optimization with fixed transaction costs and other combinatorial variables (e.g. asset count constraints). Here's what ...
1
vote
1answer
159 views

Volatility calculation for intra-day cash-or-nothing call binary option

Firstly, I do not have a quant finance background. This is new to me, and I imagine that this is a basic question for this group. I am calculating the price of a binary/digital option with ...
3
votes
1answer
137 views

Derivation of the Stochastic Vol PDE

I'm trying to follow the derivation of the stochastic vol pde for an option price - as given in Gatheral (The vol surface), Wilmott on Quant Finance and many other places. As usual one starts off with ...
1
vote
1answer
74 views

Is it illegal for a publicly traded company to publish inaccurate financial data?

If you are the book keeper for a publicly traded company and you misrepresent the financial earnings of the company (even if by accident) for an earnings quarter, is this illegal?
2
votes
1answer
72 views

Why does my posterior mean differs from Idzorek's results?

I have implemented two different expressions (Idzorek p.6, Walters p.51) of a posterior mean return calculation within a Black-Litterman framework. My results are the same, irrespective of the ...
3
votes
3answers
391 views

Papers and algorithms on bidding schemes for best order execution?

I'm building an automated option trading bot that executes common options multi-leg strategies (straddles, spreads) and I want to learn the best way to execute my orders. As you know, the bid-ask ...
1
vote
2answers
223 views

Brokers offering low-cost / free accounts [closed]

I'm attempting a "hello world" of live algorithmic trading. A script that pulls in tick data, presents it visually, and allows me to buy / sell at the press of a button. Also a toggle between { fake ...
-3
votes
1answer
102 views

How can foreign investment have a negative figure?

Just looking at http://www.tradingeconomics.com/japan/foreign-bond-investment Wondering how can foreign bond investment be negative? You can have 0 investment, you can have positive investment, but ...
0
votes
1answer
204 views

Data feed for 10 year government bond yields [duplicate]

I am trying to access a data feed for 10 year sovereign bond yields for countries, say the G20. I have tried world bank and IMF data api sources but to no avail. The data feed is used to update an ...
2
votes
0answers
60 views

Multivariate interpolation for estimating FDM in-between grid points

After implementing some FDM to price some option, there are gaps between our grid points that may be of interest. From reading around, it appears common to use bilinear interpolation to estimate ...
1
vote
0answers
70 views

What is the best way to describe latency?

What are good ways of describe observed tick data latency with a view to flagging when something is systematically wrong? For example, we would want to discount outlier ticks so that we do not alert ...
7
votes
2answers
385 views

T-Forward Price on risk-neutral measure

i have and question concerning the T-forward price definition on the Robert J.Elliot's book : Mathematics of Financial Markets. On his chapter 9, definition 9.1.3 p.249. He give the formula without ...
-2
votes
1answer
255 views

Interest Rate Swaps on Mortgages [closed]

Is it possible to get interest rate swaps on mortgages? If not, why not? Are there models that describe this? Any direction would be great.
4
votes
2answers
2k views

Value of American Call vs Value of European Call when using implicit finite differences

I calculated values for put options (european and american) using the implicit finite difference method and compared them to black/scholes values. The values for american put options are higher than ...
2
votes
1answer
64 views

Finding Credit Risk Population Data

Are there any free or relatively cheap sources of aggregate data on credit risk for specific geographic regions, ages, and so on?
3
votes
1answer
278 views

what's the relationship between forecasted stock volatility and implied volatility?(option)

what's the relationship between forecasted stock volatility and implied volatility? I know that implied volatility is the volatility calculated by BS formula, is there any relationship between implied ...
2
votes
3answers
245 views

Estimate reasonable trade sizing based on daily volume

Let's assume we have data for daily volumes traded on some asset (and open interests as well). Now if we are planning to make a trade we don't want to fat-finger it and want it to be of a reasonable ...
2
votes
1answer
102 views

Economic indicators leading the yield curve

There is a lot of research on how the government yield curve can be used to predict the economy. The government yield curve is often seen as a leading indicator. But for which variables is the curve a ...
2
votes
0answers
184 views

Funding spread in FVA calculation

For the FVA calculation, is the funding spread (either borrowing or lending) treated as a piecewise constant function (i.e., if the length of the exposure is 5 month and I know the 3 and 6 months ...
0
votes
1answer
165 views

Interpolation on CDS rates

I am just wondering if there is any way we could calculate a CDS Spread (not harzard rate) on a CDS curve. Most of the papers that I have come across so far discuss about interpolating the hazard ...
1
vote
1answer
123 views

How to score a portfolio's diversity based on security returns?

What is the best way to score a portfolio's diversity based on it's returns covariance matrix? I know that if my portfolio has two securities and their returns' correlation coefficient is -1 that is ...
1
vote
1answer
125 views

probablity expiring in the money ..basic question

Everyone says $N(d_2)$ is the probability of the option being exercised but stocks that have really high volatility have really expensive options indicating a high likelihood of expiring in the money. ...
1
vote
0answers
122 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
2
votes
1answer
463 views

Position Sizing For Ratio Pairs Trade

Ok, let's say I'm trading a spread of two stocks, X & Y, The spread is calculated as a ratio (Spread = X / Y). I use rolling stats to calculate the mean, standard deviation and hence the z-score ...
1
vote
1answer
149 views

How does Vega of a call/put behave under the Black-Scholes model?

I have two questions. I would prefer a reference if possible. Is the value of vega bounded for $\sigma\in [0,\infty)$? (I assume so, I imagine it goes to 0 as $\sigma$ go to infinity.) Are there any ...
1
vote
2answers
360 views

fair price for a call option

I am struggling with the following problem: An investor is considering a European call option, whose price $C_0$ is yet to be determined, on the shares of a company called XYZ. You know that : the ...
2
votes
0answers
88 views

How will the European requirements for prudent valuation affect derivatives pricing?

The European Banking authority has published the "EBA consults on draft technical standards on prudent valuation". How will these requirements for prudent valuation affect derivatives pricing, if at ...
3
votes
1answer
61 views

Why are some MBS's with coupons below the FRM rate priced at a premium?

I'm looking at 30Y 4.0% Freddie Mac MBS prices as of yesterday, approximately 104:10. Meanwhile, 30Y FRM Freddie Mac quotes are 4.39%. Why are the MBS priced at such a premium, even though the coupon ...
2
votes
1answer
305 views

Need overlapping sample autocorrelation correction for calculating asset return correlations

I want to measure the covariance structure of various asset returns based on varying investment periods. Campbell and Viceira (2005) do this, using known return predictors (i.e. dividend yield, ...
3
votes
2answers
672 views

Portfolio Optimization : Shrinkage of Covariance Matrix when data is available

It seems that shrinking the covariance matrix is especially useful if the number of individual stocks is greater than the number of data points. However is there any special gain if you're not ...
0
votes
1answer
77 views

Are proof-of-work systems used by exchanges?

Are there any proof-of-work systems used by exchanges? If not, are there any interesting proposals worth reading? In principle, there might be applications for proof-of-work systems in preventing ...
2
votes
0answers
252 views

Microstructure effects for a market maker? [closed]

When building a market maker that rests limits orders on both sides of the book, what microstructure effects should we be looking at to price those orders? I’m targeting liquid futures markets, and ...
4
votes
1answer
144 views

Particular kind of market game

This question concerns game theory and market equilibria which is rarely of focus here at QSE, but at the same time I believe this is a more appropriate place for such question rather than MSE. ...
5
votes
1answer
209 views

Background required for the book by Brigo and Mercurio

My aim is to be able to read and understand almost all of the book by Brigo and Mercurio including HJM, LMM and the Local Vol models. So that I am able to implement these models on my own. My ...
1
vote
1answer
85 views

Understanding the VaR example on wikipedia

In the wikipedia page on VaR The example says: ...
2
votes
0answers
128 views

Where do i find the trade execution priority rules for special order types on continous auction markets

I'm looking for documentation on how trade execution is ordered on exchanges with non standard order types. Especially linked/contingent/stop type orders. Any exchange that implements these with ...
0
votes
3answers
101 views

How can I determine U.S. market capitalization percent using WFE data?

It seems that I should be able to readily compute U.S. market capitalization percentage of global capitalization using data reported from this page at the World Federation of Exchanges. How can I ...
1
vote
0answers
82 views

Recalibrating SABR parameters for Swaption ATM volatility

I understand that the ATM volatility of Swaption moves quite frequently and the SABR will need to be recalibrated. Which parameter should I recalibrate? Is there any financial meanings why we only ...
7
votes
1answer
1k views

Which day count conventions are there and where do they apply?

I am looking for a list of day count conventions. Is the list on Wikipedia complete or do you know others? Which rules of thumb are there to choose day count conventions when none is specified, ...
5
votes
2answers
1k views

What are the econometric assumptions in the Fama-Macbeth procedure (1973)?

Fama-Macbeth (1973) introduce a two stage cross-sectional regression method (http://en.wikipedia.org/wiki/Fama%E2%80%93MacBeth_regression). 1) If I was to regress stock prices (or returns) on a ...
4
votes
1answer
253 views

How are the Hamilton–Jacobi–Bellman equations used to solve optimal control problems?

I would like to learn more on how optimal control problems are solved for financial applications. The approach seems to have a lot of interesting applications such as optimal consumption choosing ...
0
votes
1answer
141 views

Calculating the Sum of Squared Deviations between two Normalized Price Series

How can I calculate the sum of square deviations between two normalized price series according to (Gatev et. co 2006)? My normalized price series of stocks $X$ and $Y$ consist of the cumulative total ...
1
vote
1answer
187 views

Downside deviation

have any practitioners here worked with the downside deviation metric? I've looked a little into its concepts but wish to know its utility in practice (if any). Does it bring any value to risk ...
3
votes
2answers
439 views

How to remove outliers in financial times series?

I have a bunch of time series; i need to clean them before modelling. So far I just know the “filtering/smoothing” method : -Ex: moving average methodology (filter the data with a moving average ...
0
votes
1answer
119 views

First Exit Time Based Volatility

I'm hoping that someone could help better explain why $\sigma$ (equation 2.19) must be multiplied by $\frac{4n}{4n + 1}$. Obviously all the math is there. Perhaps someone can make this easier to ...
2
votes
2answers
156 views

Time-zero price of two specific contingent claims

I am unsure how to start with the following problem. I have two contingent claims where contingent claim (1) pays $\int_0^T S_u du$ and contingent claim (2) pays $(\log S_T)^2$ at time $T$ Now I ...

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