All Questions
-1
votes
1answer
137 views
High-Frequency Traders and Front Running: What order types are they using? [closed]
I often hear in the news that High-Frequency Traders can front-run incoming trades because they are faster at acquiring information and to execute trades. I also read that speed is only a necessary ...
4
votes
2answers
172 views
Fitting distributions to financial data using volatility model to estimate VaR
I want to fit a distribution to my financial data using a volatility model to estimate the VaR. So in case of a normal distribution, this would be very easy, I assume the returns to follow a normal ...
2
votes
1answer
105 views
Value at Risk Monte-Carlo using Generalized Pareto Distribution(GPD)
I have created a VBA program to calculate VaR by using Monte Carlo, I have simulated Brownian Motion. This method might be ok for 100% equity portfolio, but let's say this portfolio may have fixed ...
0
votes
2answers
109 views
Regression with Lagged variables
I am new to regression analysis. Let's say initially I have a linear regression
x = alag(x1) + blag(x2) + clag(x3) -- eq 1
I want to predict the price x based on the the price of x from previous ...
0
votes
2answers
93 views
monthly contract volume required for penny increments?
Have the exchanges disclosed their criteria?
Does anyone have a best guess based upon observations of volume (however you wish to define it)?
Please no qualitative answers.
3
votes
2answers
181 views
Using variance ratios to test for mean reversion
Can you use the variance ratio test to determine whether or not a time series is mean reverting? I'm using the Lo.Mac function in the ...
0
votes
0answers
38 views
Need historical option data for my final graduation project [duplicate]
I am a student doing my final graduation project on uncertainty quantification applied to option pricing.To validate my work I need historical european option data.So I wonder if there is someone here ...
1
vote
1answer
102 views
Testing Black Scholes Analytical Options Pricer
I've written some code to calculate European option prices using the Black-Scholes analytical method. Can somebody recommend a good way to test that code? I have looked at option pricers online like ...
3
votes
1answer
163 views
Stochastic modeling of stock price process
Apart from the model of Geometric Brownian motion is there any other "widely accepted" stochastic model to characterize the dynamics of a stock price process?
4
votes
1answer
156 views
Obtaining a consistent covariance matrix for stochastic volatility processes
What is the condition for underlying stochastic volatility processes to give a consistent covariance matrix?
I read in Hull that in order to have a consistent covariance matrix, volatility parameters ...
1
vote
0answers
46 views
Risk factors for derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are the main risk ...
3
votes
2answers
214 views
Data Synchronization
I'm working on market trends. I have daily prices for 33 assets from different markets. I was wondering if there is a way to cancel the effects of different opening/closing times.
I have been told ...
2
votes
2answers
105 views
Why do long-term equity return forecast models use dependent observations?
I've been reading up on different models used to forecast the equity risk premium, and I've seen a couple of papers that had questionable methods. For example, this paper by Javier Estrada goes into ...
2
votes
0answers
141 views
Does the geometric Ornstein-Uhlenbeck process have stationary variance?
I know that the long run variance of the standard OU process is
$\lim_{s\rightarrow \infty}\mbox{Var}(P_{t+s}|P_t) = \frac{\sigma^2}{2\theta}$
I'm using the geometric version of the process. I ...
0
votes
1answer
87 views
Assessing Forcasting with Correlated Residuals
Trying to use a linear regression model to forcast the CPI. I noticed that when I took a moving average of the residuals, though homsokedatisc and nonautocorrelated(ie they squiggle up&down with ...
3
votes
3answers
136 views
YTM and current yield
Which of the following statements is correct?
a. If a bond’s yield to maturity exceeds its coupon rate, the bond’s current yield must also exceed its coupon rate.
b. If a bond’s yield to maturity ...
2
votes
2answers
97 views
Portfolio risk-return when assets have limited and inconsistent historical data / time series?
Lets say we have "today's" snapshot of asset allocation and need to determine the 6mo, 1 yr and 5 yr risk and returns of this portfolio. If the time series for every asset is very long, longer than ...
9
votes
2answers
218 views
Stochastic modelling of derivatives on dividends
I consider pricing and risk analysis of derivatives on dividends of the members of equity indices (such as Dow Jones EuroStoxx). There are options but I focus on futures.
What are common stochastic ...
0
votes
1answer
62 views
What is the meaning of the discounted process defined from the interest rate process?
Assume a money market has interest rate process $R(t)$. In Shreve's Stochastic Calculus for Finance II, formula (5.2.17) on page 215 defines the discounted process as
$$
D(t) = e^{-\int_0^t R(s) ds}.
...
5
votes
1answer
112 views
Risk neutral valuation independent of $Q$?
This question is bothering me now for a while. Suppose given is a random payoff $f\in L^0(\mathcal{F}_T)$ at time $T$, where $L^0(\mathcal{F}_T)$ denotes the space of all $\mathcal{F}_T$-measurable ...
5
votes
2answers
161 views
How does the number of free dimensions of a model affect its required size of sample?
Adding more variables to a model usually increases its accuracy. However, without adequate analysis it could also lead to curve fitting.
Another question (How much data is needed to validate a ...
2
votes
1answer
149 views
Calculating the probability of a price change using an options pricing formula
I don't know if I'm doing this right and I'd greatly appreciate help.
I'm trying to use an option pricing formula to backout the likelihood of the Euro dropping below $1.27, even for a minute, at any ...
0
votes
2answers
86 views
changes in open interest vs changes in underlying volume
Has a relationship been noted?
Mostly, I'd like to know if the open interest increases on an underlying, does the underlying usually see increased trading?
My guess would be "yes" since MMs can ...
3
votes
3answers
204 views
Does implied vol vary for calls vs puts?
Volatility skew tells us that options with the same maturity at different strikes can have different implied vol. However, can a corresponding call and put for the same strike and maturity have ...
4
votes
1answer
146 views
Hedging with actual volatility: problem understanding the math behind the result
From this paper. page 3
We get that the total profit at expiration is the difference in value between the price of the option with actual volatility and the one with implied volatility.
I have tried ...
3
votes
1answer
139 views
Where can I get historical ticker change database?
There's 30 days worth of data at http://www.otcmarkets.com/marketActivity/symbol-changes - but I'm really looking for the past 10 years, or 5 years if only that is possible. Any dice?
The closest ...
0
votes
0answers
122 views
Mean Reverting Spread
I have constructed a mean reverting spread using two indexes. I know they have to be mean reverting, but when plotted side by side they are mean reverting for a little bit and then deviate and head ...
6
votes
1answer
108 views
Different definition of NFLVR
I attend a course in mathematical finance. In the first chapter we discus the absence of arbitrage in full generality. For this purpose we define the following sets:
...
3
votes
2answers
196 views
Black-Scholes and Fundamentals
So basically
$dS_t=\mu S_tdt+\sigma S_tdWt$
and
$\mu=r-\frac12\sigma^2$
I have just been thinking about this later equation. This is very interesting because it ties together risk-free ...
11
votes
1answer
219 views
Are BSDE's used in practice?
In the academic applied probability/math finance community, Backwards Stochastic Differential Equations (BSDE's) are extremely popular, and they provide a single framework for several different ...
0
votes
0answers
34 views
Where can I buy historical intraday bars? [duplicate]
I'm looking to buy historical intraday 1 or 5 minute bars of the US stocks going back as far as possible (up to 10 years). Preferably: OHLC bid+ask+trade prices and with volume (But trade prices at 5 ...
1
vote
0answers
140 views
Call options portfolio: what would the underlyings' moments to be maximized?
Let you have only three underlyings, like SPY, TLT and GLD, and you want to buy $n_{1}$ Call options on SPY, $n_{2}$ Call options on TLT and $n_{3}$ Call options on GLD... with a limited budget, that ...
1
vote
0answers
49 views
Problems with exact Heston simulations
I am just wondering if there is any problem with the so-called "exact" Heston simulations? So far what I have seen are the good things about it, what are the disadvantages? Because if it is so ...
0
votes
1answer
79 views
Matlab - Differences between rng and rand
I was trying to run some Monte-Carlo simulations and if I used:
rng(seed, 'Twister');
For some reason I would get "Option Values Can not be Negative" errors in the blsimpv function, but if I just ...
0
votes
2answers
108 views
Credit risk data
I am trying to get historical data for credit risk and do some analysis on it as a school project. I thought CDX index might be a good proxy for typical credit risk data, but I am not sure. Typically ...
7
votes
3answers
140 views
How to justify a model that could not predict external factors?
I'm building some models, for example, Bad Loan (NPL) rate.
It's based on historical simulation method -- basically it's saying the future behavior could be predicted by history data.
However, this ...
5
votes
4answers
535 views
Mapping symbols between tickers, Reuters RICs and Bloomberg tickers
Is there any known solution (preferably open source) to map between ticker symbols, Reuters and Bloomberg symbols. For example:
Ticker: AAPL
Reuters: RSF.ANY.AAPL.OQ
Bloomberg: AAPL US Equity
...
0
votes
0answers
77 views
Correlation Sensitivity
Suppose I have 2 stocks $S_{1}$ and $S_{2}$:
\begin{align}
& dS_{1}=rS_{1}dt+\sigma_{1}S_{1}dB_{1}\\
& dS_{2}=rS_{2}dt+\sigma_{2}S_{2}dB_{2}\\
& dB_{1}dB_{2}=\rho dt
\end{align}
Then I ...
0
votes
2answers
200 views
Why the implied volatilities calculated are so different
I Calculated facebook option(expired in 12/4/13) Implied Volatility with the Bisection Method. The program will be attached at the end. The results for different strike prices are so different:
...
3
votes
3answers
312 views
Central Limit Theorem and Lévy processes
Lévy processes are self-decomposable and independent on any non-overlapping interval, so how come the distribution of the process at time T,$\phi(T)$, which is the sum of N i.i.d with law $\phi(T/N)$ ...
1
vote
0answers
124 views
Stepwise Cointegration
This is more of a general question at this point, but if my thought process makes sense I will follow up with an R implementation. I have read a number of papers on cointegration analysis for pairs ...
3
votes
2answers
100 views
Endogeniety of Black-Scholes
I know this is a naïve question but how does the BS formula have a closed form solution? It seems from what I am reading Price impacts delta, price influences volatility which in turn influeces delta ...
3
votes
1answer
128 views
Examples of investable factors via factor funds/ETFs
In the draft chapter about hedge funds of his forthcoming book Andrew Ang postulates the dawn of new factor funds (p. 35 ff.), i.e. funds that directly target factors like volatility, value-growth, ...
1
vote
3answers
244 views
Kolmogorov-Smirnov test
Is Kolmogorov-Smirnov test self-sufficient to prove normal distribution of a time series? And then test efficiency of a market?
4
votes
2answers
146 views
Is drift rate the same as interest rate in risk-neutral random walk when using Monte Carlo for option pricing?
When using following risk-neutral random walk
$$\delta S = rS \delta t + \sigma S \sqrt{\delta t} \phi$$
where $\phi \sim N(0,1)$.
Now when a text mentions drift = 5% does that mean that interest ...
2
votes
2answers
255 views
Theta's effect for OTM options
How does $\Theta$ change for deep out-of-the money options? Looking at the below graph, it seems the time decay is highest for ATM options and increases rapidly as we approach maturity of the option. ...
1
vote
2answers
107 views
Reasoning behind multiple names for the equivalent risk measures AVaR/ETL/ES/CVaR
Doe's any one know the history behind, or background of the multiple naming conventions for the equivalent risk functions. Different quant authors prefer using different names, does any one know why? ...
6
votes
3answers
265 views
Scanning a stock database for errors/flaws
I'm currently working on some matlab code that is supposed to check a stock database for any errors (missing values, wrong values, etc.). The reason for this is that after reading this post I came to ...
0
votes
1answer
161 views
Doesn't a perpetual option contradict the Black-Scholes framework?
A standard example when learning to price American options is the perpetual American put. This is a put that has no expiry (or you can consider T = infinity). The standard solution prices this using ...
1
vote
2answers
247 views
How to detect and adjust for stock splits?
I am using a large daily data panel for over 250 companies and over several years. I am concerned about adjusting for stock splits. Is there any program in SAS to detect stock splits? How do I adjust ...
