2
votes
1answer
206 views

Black-Scholes derivation assumption contradiction

In many books and derivations of the Black-Scholes PDE one sees that $$\Pi=V-\Delta F \Rightarrow d\Pi=dV-\Delta dF$$ which implicitly assumes that $d\Delta=0$. Somewhere down the road one then ...
7
votes
1answer
258 views

How do you calibrate a poisson arrival rate process?

Many papers in the microstructure literature assume an order arrival rate of the form $\lambda^a(\delta) = \lambda^b(\delta) = Ae^{-k\delta}$ That is, an order that's placed $\delta$ away from the ...
2
votes
1answer
312 views

Divergent or Convergent Strategies? Which is the way to go?

Consider first the simple convergent strategy to invest some amount $X$ in a game, if you win you simply take the winnings and keep playing a subsequent game. In the case of a loss, you believe in ...
1
vote
2answers
111 views

Simple question about expected value of brownian motion

I would appreciate some help with the math in this paper : High Frequency Trading in a Limit Order Book Specifically, I would like to understand how the authors calculated the expected value of price ...
1
vote
0answers
94 views

Derivation of a ML estimator

I have the following likelihood function: I'm given this information about the $\Omega$ matrix ($\boldsymbol{1}$ is a $T \times 1$ vector of ones): I would like to be able to show that the ...
1
vote
1answer
105 views

Different range price data on one chart

I'd like to evaluate 3-4 instruments on one price chart. For example: Stock A: 90,05 90,15 90,25 90,09 Stock B: 0,0045 0,0049 0,0039 0,0040 Stock C: 1998,1 1998,7 1998,8 1997 I try to use: ...
1
vote
1answer
90 views

Simple pricing example confusion

This it taken from "Heard on the Street", Section B. Consider a market with $0$ risk-free rate, no transactions costs etc. The IBM stock costs \$75 and does not pay dividends. Design a security ...
4
votes
0answers
154 views

Graduating Quantitative Finance (please don't move it to meta immidiately)

Seeing how very few actually read the Quant Finance meta I intentionally post it here on the main site. To the more powerful admins: could you leave it here for a day or two and move it to meta ...
0
votes
3answers
489 views

Trading spot volatility

I am reading a paper that very briefly talks about some volatility arbitrage strategies. It's so brief that I do not exactly understand how it works. It says one of the strategy is based on "short ...
1
vote
1answer
260 views

Price volatility and yield volatility

This question is a bit confused, but please bear with me. Now and then I see people use the terminology "price volatility" and "yield volatility" in connection with bond options. I understand the ...
3
votes
1answer
156 views

How to price this option without using BS framework

We have a stock at price 1 dollar which pays no dividend. Also we assume zero interest rate. When the price hits $H$ dollars for the first time where $H>1$, we can exercise the option and receive 1 ...
2
votes
2answers
237 views

Bloomberg ticks is difference from Reuter ticks?

when I using Bloomberg excel plugins to retrieve the ticks and compare with Reuter RDF data, for some UK equity stocks in same days, the number of ticks and sum of total value is difference, why will ...
1
vote
0answers
35 views

Having trouble finding PPI for commodity using NAICS code

Is there a way to find the Producer price index for a commodity during two different years by using the NAICS code of the commodity. For example, I know the NAICS code for cast iron steel bearings ...
0
votes
0answers
1k views

Margin % Bridge - Effect of Price, Cost, Volume

Given sales and profitability data for two time periods, how would I go about calculating the impact of price, cost, volume and mix margin % (bps)? I can do the analysis as a gross margin $ bridge, ...
3
votes
1answer
111 views

How do i test the significance of Sharpe ratio of a strategy using bootstrap

How do i test the significance of Sharpe ratio of a strategy whether it is any different from another strategy ?? How do i get a p-value out of it ? What should be the H0 in the hypothesis testing ? ...
1
vote
1answer
93 views

When do trades actually execute on an exchange?

Obviously, when ownership of some security is transferred from party A to party B, both parties' balances must be updated and recorded in an atomic transaction. Call this "an execution". So in an ...
0
votes
0answers
373 views

Downloading Quotes in CSV format from Yahoo Finance - Beta symbol?

By using http://finance.yahoo.com/d/quotes.csv?s=STOCKNAME&f=I am able to download a CSV file, does anyone know what the symbol for beta is? It should go after ...
7
votes
3answers
358 views

What quant-related functionalities is R lacking compared to commercial software like Mathematica and Matlab?

R that originated as a purely statistical tool has meanwhile blossomed into a comprehensive workbench for different tasks. I am familiar with Mathematica and don't like how it forces a license on ...
1
vote
2answers
86 views

Efficient numerical approaches for pricing American Options with multiple sources of noise

I am looking for efficient numerical approaches for pricing American options when two or more sources of noise are involved (the simplest case coming to mind would be the Heston Model) Eventhough I ...
0
votes
1answer
90 views

Why systematic divergence between ^VIX and VXX?

Why is there systematic negative divergence between the VIX index and the VXX ETF meant to track it? http://finance.yahoo.com/q/bc?s=%5EVIX&t=5y&l=on&z=l&q=l&c=vxx
2
votes
1answer
193 views

How to compare different volatility measures?

I read the Euan Sinclair's book (Volatility trading) in which he suggests different volatility estimators (Close-to-close, Parkinson, Garman-Klass, ...). I am inquiring about what is the best stock ...
0
votes
1answer
156 views

S&P500 components at specific date [duplicate]

I am trying to reproduce a method presented in a scientific paper. They used the following dataset: daily closing prices of S&P500 stocks (the first 100, alphabetically by ticker, with a full ...
2
votes
0answers
118 views

Weighted average implied optionlet/swaptions volatility

Let an implied volatility curve/surface is made up by optionlets or swaptions Black's implied volatility. If you wanted to price, say, a FRN with cap and/or floor, a CMS et cetera you would input the ...
3
votes
1answer
158 views

PDE pricing of barrier options in BS

Path-dependent options in BS framework is intuitive to price with monte-carlo under risk-neutral measure, however it appears that several kinds can be priced with PDEs. I understand how does the story ...
1
vote
1answer
84 views

what is the vol in the BS formula?

I need to compute the delta of an option for which I know a) the time to maturity, b) the price of the option, c) the price of the underlying asset. what is the formula to get this delta It seems ...
4
votes
4answers
236 views

Why use implied volatility

First I'll describe the way I understood things so far from the literature, feel free to correct me here, and then I formulate some questions. I'd search through QSE, but haven't found so far similar ...
2
votes
2answers
289 views

Pricing an american style option on a bond future

what is the good way to pricing american option on bond future? From bonk fixed income securities 3rd by Tuckman, I understand how to pricing European option on bond future, but I still have no clue ...
5
votes
1answer
137 views

Overview of robust/regularized portfolio selection

I am looking for either a review paper or individual papers on portfolio selection using robust statistics or regularization (e.g. LASSO, Ridge, etc.) I.e. a review on methods along the lines of: M ...
0
votes
0answers
59 views

What are some different methods for calculating hedge ratios for multiple leg spreads?

I am looking for many different ways of doing this, and I want to compare the results I get among the different choices. I am going to be using close-to-close change data. Thanks.
2
votes
1answer
211 views

Value at Risk from Delta of a single asset portfolio

I am trying to figure out the following, for me unfamiliar type of question: Given is a single asset portfolio: the Delta of the portfolio is 15, the value of the asset is 10 and the daily volatility ...
1
vote
0answers
51 views

Incorporating a stochastic correlation structure into a multi-factor model

I am considering extending a multi-factor fixed income stochastic model (e.g. LIBOR-Market) to use stochastic correlation matrices instead of determinstic ones. For pricing instruments with short ...
7
votes
3answers
575 views

What are the merits of pseudo random numbers over quasi random numbers in monte-carlo simulation?

I understand that quasi-random numbers have much better convergence, but are there any reasons for me to use pseudo-random numbers instead?
6
votes
1answer
89 views

FTAP a-la Harrison, Kreps and Pliska

I was reading the papers co-authored by Harrison, Kreps and Pliska, that initiated the formal research on the connection between pricing, martingale measures, arbitrage and completeness. I have some ...
4
votes
3answers
231 views

How to hedge a derivative that pays the reciprocal of the stock price?

1) Suppose S is the stock price, how to hedge a derivative that pays $1/S_t$ at time $t$? 2) Suppose there will be a dividend of amount $d$ between $t$ and $T$, how to hedge a derivative that pays ...
3
votes
1answer
151 views

Numéraire — couldn't understand the wiki explanation

I'm trying to understand Numéraire concept so am reading the wiki page: I couldn't understand the last formula's 2nd equation: $$ ...
4
votes
1answer
299 views

Mean-variance portfolio & quadratic programming

I am somewhat confused when it comes to modern portfolio theory, mean-variance portfolio optimization and its quadratic programming formulation. Issue 1: Formulation of mean-variance portfolio ...
1
vote
1answer
199 views

How can I use PCA to determine spread ratios for multiple legs?

I would like to generalize Paul Teetor's A Better Hedge Ratio, which uses prcomp() to determine a ratio between two legs. I am hoping to extend this to multiple legs, but am having trouble finding ...
5
votes
1answer
230 views

Use of Girsanov's theorem in bond pricing

Assume that we want to calculate the time $t=0$ price of a bond: $B(0,T) = E_P[\exp(-\int_0^T r_s ds)]$, where $r$ is the interest rate following the SDE $dr_t=k(\theta-r_t)dt+\sigma ...
3
votes
2answers
336 views

SABR model inconsistent with Black Swaption Pricing

I am confused on the following: When we price swaption, the market convention is to use Black's Model which assumes forward swap rate is following Black's model under the Q(t) measure. When we tries ...
4
votes
1answer
79 views

backward Kolmogorov equations - Markov properties

I'm a physicist who's research has lead him into the theory of stochastic differential equations. If this question is not appropriate for this forum, please feel free to delete it. So I've been ...
2
votes
0answers
135 views

Reference for Algorithmic Trading [closed]

I have recently started to look up algorithmic trading but I am finding it hard to find references related to this field.I am math major with a sound knowledge in Statistics, various programming ...
3
votes
4answers
227 views

Does an implied volatility always exist for a binary option?

I'm trying to compute the implied volatility of a binary option but I cannot get some of the strikes to reach a convergent solution using either a Monte Carlo pricing model or an analytical Black ...
3
votes
1answer
91 views

Understanding the derivation of a ML-estimator

I'm trying to understand the derivation of a ML-estimator and more specifically the rewriting of the covariance matrix Sigma. In this rewriting a lemma is used to show that $$ (1) \hspace{1.4 ...
5
votes
0answers
415 views

On the interface between Quant finance and actuarial-science/insurance-math

Actuaries (at least in Europe) are frequently severily lacking in quant finance topics. At best they are familiar with B&S model. People going into quant finane or striving to become a quant on ...
2
votes
2answers
175 views

Options with a stochastic strike

Do options where the strike itself is a stochastic process exist? If they do - what are the motivations for such a product and where is it used ? Example: Call-Option with stochastic strike: ...
2
votes
1answer
120 views

Where does this copula come from?

In a paper I encountered the following notation $$P(Z\leq z,u\leq Y\leq v)=C(F_{Z}(z),F_{Y}(v)-F_{Y}(u))$$ However I don't see why this holds in relation to uniform random variables. Usually ...
1
vote
2answers
297 views

Why is that a risk averse consumer buys the optimum insurance when there is actuarially fair insurance?

I think I understand the fact that when marginal utilities of the same function are equal (a consequence of the actuarially fair insurance), the independent variables in it must be equal -- right? But ...
0
votes
2answers
705 views

Are PX_BID and PX_ASK on Bloomberg closing bid/ask? or are they daily averaged?

Bloomberg provides PX_BID and PX_ASK on a daily basis, but it's not clear exactly where these numbers come from. Are they closing bid and ask prices, or are they averaged over the entire day? For ...
1
vote
0answers
147 views

Credit Spread, Transition Matrix

Consider a credit rating system consisting of three credit states, A, B and D (default) with the following annual credit transition probability: T = [0.7 0.2 0.1;0.2 0.5 0.3; 0 0 1]. For a company ...
1
vote
1answer
208 views

Given future price probability distribution, what is a strategy that maximizes return?

Say I know the price probability distribution, e.g., lognormal(p,s), of a stock X at a future time ...

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