# All Questions

92 views

### Level II market data (equities)

I have been playing around with some equities historical market data and I understand that different exchanges have different definitions of what Level II (Limit Order Book) data means. What I'm ...
56 views

### Which quantitative tools are actually used for hedging energy price and volume risk?

I'm a finance professor and I am looking for someone with actual trading and risk management knowledge within the energy sector who can tell me about pricing and hedging energy (especially electricity ...
46 views

### Is it possible that a security with a positive variance can have a required return that is less than the risk free rate?

I'm not sure of the answer but I think it's possible. What I don't get is what characteristics this asset would need to have and why it would mean that an investor would accept a return less than the ...
74 views

### quadratic programming portfolio optimisation

I am using MATLAB to do an optimisation. The QP minimisation problem is set up in the standard form shown below. The optimisation is used to calculate the weights (x vector in the equation below) of a ...
127 views

### How to test that a distribution has infinite mean?

I observe a sample from a distribution that I expect to be the hitting time $$\tau = \inf\{t>0| X(t)>a\}$$ where $X(t)$ is a Lévy process with $X(0)=0$ and $a$ is some constant. $X$ is not a ...
295 views

### Replicating portfolio and risk-neutral pricing for interest rate options

For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ...
71 views

### HAR-RV, realized GARCH and HEAVY model for realized volatility

I don't have much experience with volatility modeling using intraday data but I'm in the process of collecting 5mins data. Currently I have ~6 months of data. Is it enough to use these models with ...
1k views

### How do banks actually make money on mortgages [closed]

This is a bit of a subjective question and relates primarily to the UK market There are a number of banks who are lending at BOE + 1.49% (ie: 1.99 %) whilst at the same time accepting deposits paying ...
45 views

### How can I estimate expected maximum drawdown with historical data?

I am looking for a way to estimate maximum drawdowns for my portfolio (mostly options). I have a trackrecord in a spreadsheet with historical data, account size would be 20k and maximum risk 2%. I ...
26k views

### How to calculate unsystematic risk?

We know that there are 2 types of risk which are systematic and unsystematic risk. Systematic risk can be estimate through the calculation of β in CAPM formula. But how can we estimate the ...
54 views

### Efficient Frontier Derivation: why minimize half the portfolio variance instead of just the variance?

In Robert Merton's derivation of the efficient frontier of a portfolio, he minimizes $\frac{1}{2}\sigma^2$ over the investment weights in each asset, where $\sigma^2$ represents portfolio variance. ...
148 views

### Credit Rating vs Bond Yield

I am looking for some references on quantifying the dependence between credit rating and bond yield. I have some data (found some Bloomberg indices which give average yield based on credit rating), ...
76 views

### Is it fair to assume $(ud=1)$ in the binomial tree option pricing model?

I have discussion with my colleague on why a general assumption $$ud=1$$ in binomial tree option pricing model would be necessary? I take it a simplification of the problem, otherwise, there will be ...
595 views

### Back office processing for FX trades

Can someone provide (or point me to) a summary of back office processing nuances specific to FX trading? For example, I know that there are several FX-specific risks that must be managed. They include ...
61 views

### How to interpret ACF and PACF plots

I just want to check that I am interpreting the ACF and PACF plots correctly: The data corresponds to the errors generated between the actual data points and the estimates generated using an ...
134 views

### Looking for Research Paper on Creation of Currency Baskets

I came across a paper, not sure it originated from academia or a blog or such, that reported on applying principal components to build currency baskets from a set of individual currency pairs and to ...
76 views

### Law of a geometric brownian motion first hitting time (formula dont match Monte Carlo Simulation)

I posted this question before on MSE I need to use it in a small step in the middle of a simulation and I think I'm not getting correct results to this probabilities and so for my all ...
90 views

### What's the intuition behind DTS(duration times spread) in fixed income?

I am having some difficulty grasping the concept of using DTS to measure credit risk. In the equity world, one typical measure of risk is beta, which is quite well-defined as the exposure to a common ...
163 views

### Platform for Quantitative equity portfolio

What are the most popular platforms used for quantitative equity portfolio management/research? I've only used Barra so far for their factor models. Is there any specific feature or model you think ...
134 views

### Inflation-Linked Bonds & Asset Swap Spreads

I am trying to plot the asset swap spreads of government inflation-linked bonds (ILBs) versus the asset swap spread of government nominal (plain-vanilla) reference bonds. I used the article in the ...
19 views

### What's the best filter to implement in order to assess the persistency of a FX devaluation?

I'm trying to to analyze the impact of a FX devaluation in companies' exports and earnings?
68 views

### Text book or distilled guide to market making?

Are there any practical articles, blogs or books that describe common practices in market making and how to calculate and use common measures? The majority of the information I found are research ...
98 views

### What are the most effective market variables to measure liquidity/illiquidity in the market?

I'm trying to find/create a variable that measures liquidity in financial markets in order to assess, for instance whether credit conditions tightened? Does anyone know any relevant literature ...
164 views

### Analysis of Unbalanced Covered Calls

Hello I am doing an analysis on covered calls with and extra amount of naked calls. Ignore the symbol and current macroeconomic events. I couldn't find any reference to this strategy (unbalanced is ...
63 views

### optimisation problem with linear constraint

I have an optimisation problem. I wish to maximise a function subject to a constraint. It is the constraint that is causing me problems. I am using an addin in Matlab which does the optimisation ...
44 views

### Book chart plotting library identification

can you help me identify how those charts are constructed? To your knowledge, is it generated from Python, R, Java, C++? What packages can you identify? I've tried the ggplot2 library in R and I have ...
20 views

### AT1 ratio, Core T1 ration and CET1 ratio

I would like to first know the precise definition of each one of those 3 ratios as well as there differences. On the web there is bit of a mess on the explanations. I could not find a simple and clear ...
190 views

### Excel to Java for Interactive brokers

I have a working excel workbook connected to Interactive brokers DDE API. I am struggling to upgrade to a more robust environment like Java. I tried to change it to ActiveX for Excel but the ...
74 views

### negative transition probabilities in the heston model

I've been trying to implement a bivariate tree for pricing american options with the heston model in R using the paper of Beliaeva and Nawalkha ...
68 views

### Ito integrals and copulas

Let $X_{t}$ and $Y_{t}$ be two brownian motions and let their joint distribution be given by $F$. So in regularly correlated BM's where $dX_{t}dY_{t}=\rho dt$, we have a bivariate normal distribution ...
63 views

### Where can I find a correlation matrix between the revenues of different industries?

I don't need something super complicated, I would just like a quick and dirty way of estimating the correlation coefficients between the revenues of different companies. Information on companies in ...
109 views

### Estimate rolling stochastic volatility forecast using stochvol in R

I want to use the R package stochvol to fit a SV model to a DAX training set and use the output to estimate a rolling one-step-ahead forecast: ...
49 views

### Pricing American with floating strike

Consider a American floating strike put option with maturity $T$, written on a non-dividend paying stock $S_t$. The strike of this option at time $t\leq T$ is $Ke^{-r (T-t )}$, where $r$ is the ...
947 views

### Book on market microstructure

Can I get some recommendations for a book on market microstructure? I'm not looking for some author's questionable methods for trading, I'm just looking for a book that provides me with facts about ...
29 views

### Why interest rate future does not support fed policy on reducing assets buying?

Using the 3-mon eurodollar interest rate futures, I construct a yield curve each year for 2015-2021 using sampling date from the end of the month. If you graphed this out, you would see that the ...
44 views

### How is USGG10Y (or any tenor) constructed?

I was wondering how the yield curve for US treasuries are constructed (ex. USGG10Y, USGG5Y, etc.). How to compute for it exactly (what deals/quotes are included in it, what financial institutions are ...
88 views

### Back-testing Value at Risk with a WML investment strategy

I'm currently taking a course in Financial Econometrics and there is a question in the lecture notes regarding back-testing of VaR which I'm have difficulty with. First of all the procedure for ...
676 views

### RQuantLib, Hoadley and Bloomberg YAS: fixed rate bond pricing differences?

I'm trying to price a fixed rate bond one year from now on. The bond is the PEUGOT 7 ⅜ 03/06/18, whose ISIN code is FR0011439975. I'm using such a specific example because in this way everyone can ...
78 views

### What makes investors risk averse?

There are some regularly-occuring events that coincide with a rise in the implied volatility of an asset. For example, in advance of an firm's annual earnings report, it is typically expensive to buy ...
130 views

### Factor model assumptions

I was reading on Factor Models in the book Quantitative Risk Management by McNeil, et al. In section 3.4.1 they introduce a linear factor model $$X = a + BF + \epsilon,$$ where $X \in R^d$, \$F \in ...
44 views

### Testing Statistical Significance of Various Portfolio Simulations

I'm trying to determine which of my portfolio simulations/backtests if any are good enough to put some money into. I outline an approach below and I'm interested in knowing: What problems are there ...
154 views

### ex ante tracking error correlation between funds

I have two portfolio's called Comb & Global. They both have the same investable universe lets says 3000 stocks & are measured against the same benchmark. So it is possible that both funds hold ...
35 views

### How to compute for basis adjusted forward rate?

To give you a brief background, I'm valuing a fixed-for-float Interest Rate Swap (IRS) using Bloomberg. I put in a notional amount in (USD) and a assigned 6MO USD LIBOR as the reference index for the ...
61 views

### detecting and measuring lead lag effect

Given two time series data. I remember there is one statistics that tells you one is the leading factor while the other is the lagging factor. However, i do not remember the exact details. correlation ...
165 views

### stock option strategies long vs short

What makes an option strategy long or short? I got the impression that if it is a net debit (you pay to open the strategy) it is classified 'long' (strangle, straddle) Then I learned about the call ...
23 views

### How to compare the volatility of quarterly p&l of two firms in the same sector?

I want to compare the volatility of the historical quarterly profit and loss data of two or more firms operating in the same sector and determine whether the volatility of p&l of these firms is ...
22 views

### negative probabilities in the bivariate tree heston model

I am trying to implement the bivariate tree approach for the Heston model by Beliavea & Nawalkha. I currently have the problem that given the specifications in their examples, I always obtain ...
104 views

### factor models and using cross section regression

I have been doing some reading on factor models. In the literature it mentions that when creating a portfolio that maximises particular attributes it may lead to unwanted bias to other factors. I ...
I'm trying to get an intuition as to why the adjusted closing price includes a dividend adjustment: $$1 - \frac{dividend}{close}$$ I understand why the adjusted closing ...