1
vote
0answers
61 views

SDE for a portfolio of two correlated assets $ Y_{t} = 2 S^{1}_{t} S^{2}_{t}$

I am analysing a problem where I have two correlated stocks described by Brownian motions $$ \frac{dS^{1}_{t}}{S^{1}_{t}}=\mu_{1} dt + \sigma_{1} dW^{1}_{t} \quad \quad (1)$$ $$ ...
1
vote
0answers
38 views

On the construction of a Brownian motion from a Gaussian process

Let $X$ a Gaussian process defined by $$ X_t=\int_{0}^{t}\left(\frac{1}{\sigma}\left(r_s-\frac{\sigma^2}{2}\right)-\rho\sigma_P(s,T)\right)\mathrm{d}s+\sqrt{1-\rho^2}Z_2(t)+\rho Z_1(t);\;\;t\in[0,T] ...
4
votes
1answer
69 views

Predicting the Future FX Spot Rates

Say I need to predict what the spot rate between USD and CAD will be in 3 months. What will be the most accurate measure or model that I could possibly use? Does the 3 month forward rate necessarily ...
1
vote
1answer
65 views

How frequently do traders rebalance their gamma hedges?

Say, for instance, that you've set up a delta-neutral straddle (i.e. you are long volatility, short time decay) and want to dynamically hedge your gamma in order to offset losses due to theta. Is ...
1
vote
0answers
52 views

Modeling Interest-only Mortgages

First post on this forum - happy to be here. Please give feedback if this is off-topic so I can more meaningfully contribute moving forward. Can we infer a range of future all-in costs for I/O ARMs ...
3
votes
1answer
80 views

Why is the value of an adaptive stochastic process known at time t?

I am having a hard time to understand the concept of an adapted stochastic process. Using an analogy to finance, I have been told we can think of adaptiveness of a stock price process as having an ...
4
votes
1answer
79 views

Backesting VaR on overlapping intervals to year's end

Let us assume that each month of the year (up to November) we calculate a VaR (say 99%) with holding period to the end of the year. Thus the holding period starts with 12 months and goes down to 1 ...
1
vote
0answers
24 views

PnL Explained Using Scenario(Full Reval Model)

I was wondering if any quant guru can help . How to calculate the PnL explained using full reval aka scenario based = > t - (t-1) approach for linear instrument. I am finding difficulty to understand ...
1
vote
0answers
15 views

How to calculate the initial payment of a graduated payment mortgage (GPM). Real estate Mortgage analysis

My professor used this: 12%, monthly-pmt, 30-yr GPM with 4 annual step- ups of 7.5% each, then constant after year 4: ...
2
votes
1answer
25 views

Simple Moving Average Backtest: Cumulative Return too high

I apologize if this is way too basic a question, but I'm an absolute beginner to trading and am in the process of learning the fundamentals. Currently I'm trying to model a (10-day) SMA backtest in ...
5
votes
1answer
83 views

Bloomberg & R: Accessing multiple securities with getBars() in R

I am attempting to access 1 minute trade data for 50 securities using Bloomberg API (rblpapi). Following is the code I got from the CRAN: ...
3
votes
1answer
61 views

Qualitative properties of call

I have read somewhere that we can show by using arbitrage argument the following relationship for call option : $$\frac{\partial{C_t(T,K)}}{\partial{K}}\leq0$$ ...
2
votes
0answers
33 views

Using Market Prices of Bonds to Model the Discount Curve with a Polynomial (Math + R)

I have a small program I'm building to interpolate the discount curve from a portfolio of benchmark bonds. If anyone has any guesses as to whether it's my process, or my code that's messed up I would ...
1
vote
0answers
15 views

Affect of choosing different combinations of variables for multivariate regression [closed]

If I have variables x1,x2,x3,and x4 that have correlation coefficients −0.9,−0.5,0.5, and 0.9 to another variable y, what is the effect of choosing different combinations of them in a multivariate ...
2
votes
0answers
20 views

Using Kendall rank correlation to construct a covariance matrix?

I am wondering if it's mathematically 'correct' to employ a correlation matrix based on Kendall-correlation when constructing a covariance matrix? I.e., is it wrong to multiply standard deviations of ...
1
vote
2answers
37 views

Swap prices (preferably based on 3 month LIBOR)?

Where can I find a listing of forward swap rates based on libor. E.g. pricing on a swap of rates floating over 30 day libor for 3 year fixed, one year from now?
3
votes
0answers
59 views

Solution for american perpetual put

I have been attempting an exercise in which I have to determine the value of an american perpetual put, $P$ in terms of the asset value $S$. The solution to the exercise says: When $S>S_f$ (the ...
3
votes
1answer
88 views

How to hedge a barrier option with vanilla options?

I want to hedge a barrier option, say a knock-out call with strike K and barrier B out-of-the-money. My idea was to start from the payoff diagram of this option, and try to accomodate it with vanilla ...
1
vote
0answers
22 views

Marginal Distribution using GARCH model

I have n return series. I fitted AR(1)-GARCH(1,1) to each return series. Then used PIT(residuals) to transform the residuals to uniform. Then I fitted n dim copula to the data. I simulated 1000 points ...
1
vote
0answers
16 views

How to Rank assets in Portfolio? [closed]

I am working on active equity Portfolio. I have total 30 securities in my Portfolio. Can someone please guide me how can I rank those assets in my portfolio. ...
4
votes
1answer
70 views

Butterfly spread model price

Consider a butterfly spread with strikes $K_1, K_2, K_3$. My professor wrote the model price, $V$, was equal to the following: $$V = exp(-rT) * P(K_1<S_T<K_3) * (1/2) \Delta K$$ where $\Delta K ...
2
votes
2answers
36 views

CSA discounting vs OIS discounting

In the fixed income literature, is the CSA discounting the same as OIS discounting? Seems they're referring to the same thing, but couldn't find an explicit statement confirming it.
2
votes
1answer
68 views

What are flickering orders?

I am reading a paper for my bachelor thesis, Queuing Uncertainty in Limit Order Market by Bart Zhou Yueshen who is the new AP at INSEAD. In the abstract, the author said: "Flickering orders manifest ...
1
vote
2answers
23 views

Initiating new orders with active “order-session” only?

Is it a must to establish "quote-session" & subscribing to quotes/market data before initiating a "New Order-single(Market-GTC)"? I actually can't see any use of quote-session for trading ...
3
votes
0answers
126 views

How quants use models for stock market prediction

I am learning machine learning to use it for stock market price forecasting. While doing that I got this question. If we take any country with stock exchange they have more than one investment assests ...
3
votes
1answer
35 views

STCDO upper tranche still paying coupons even after all default

We assume : that a CDO on $n$ names, with a maturity $T$ that at a time $\tau<T$ before the maturity of the CDO, these $n$ names have defaulted, that we are the protection buyer of the 22-100 ...
1
vote
0answers
19 views

what do metrics and indicatives mean in the finance context? Like trading of MBS products

it's often heard in my daily work as a programmer in an investment bank, supporting mortgage backed securities desks (passthrough, agency cmo, cmbs, etc). My take is that the terms describe the ...
5
votes
3answers
183 views

Construction of VIX and VVIX

I just read the CBOE's Whitepapers for VIX and VVIX and notice that they are constructed in the same way, i.e. a range of calls and puts on the respective underlyings (S&P500 in case of VIX, and ...
1
vote
0answers
10 views

How to calculate price in non-competitive bidding that bidders will receive?

Following bids are received in treasury bond auction. Notified amount is Rs.20,000Million. No amount devolves on the RBI/PDs. No. Of bonds/ Price(Rs.) 46/ 110.185 45/ ...
1
vote
0answers
38 views

Distribution of AR and MA polynoms roots in ARMA/ARMA-GARCH models

I have another noob question. So, for example, I have ARMA(2,2) model: $$ x_{t} = \phi_{1}x_{t-1} + \phi_{2}x_{t-2} + e_{t} + \theta_{1} e_{t-1} + \theta_{2} e_{t-2}$$. So, I have 2 polynoms: $$1 - ...
1
vote
1answer
25 views

Historical VaR on Commodity Physical Forward

Recently came across building Histroical VaR for commodity forward position. Understood from quants guru the best way to calculate VaR is using full re-valuation, Full reval is computationally ...
1
vote
1answer
42 views

Portfolio optimization - maximize variance with exposure to risk factors equal to zero

Optimize a portfolio such that the exposure to risk factors is zero and the variance is maximized (instead of traditional minimization problem). so the optimization problem look like: ...
3
votes
1answer
88 views

What are some markets that don't have volatility smiles and why don't they?

I have read that volatility smiles didn't show up for equity options until 1987. Can some one give me an example(s) of what markets now still don't have volatility smiles and what an explanation for ...
1
vote
1answer
27 views

Fast to compute, yet plausible risk attribution measures

I am looking for a fast to compute, yet plausible risk attribution measure based on the risk measure used compute overall risk. To be more specific, assume that my risk measure is VaR of a portfolio. ...
1
vote
1answer
66 views

Static and Dynamic Hedging of Vol/Var Swaps

Why can a variance swap be perfectly statically hedged whereas a volatility swap requires dynamic hedging? Possible reference request to the corresponding literature.
5
votes
2answers
147 views

How to calculate Implied Volatility for out-of-the-money options?

I'm trying to calculate the implied volatility for out-of-the-money options, and to a lesser extent, in-the-money options. Most of the literature estimations I could find for implied volatility were ...
0
votes
0answers
45 views

The Merton's model

According to Merton's model we can calculate probability of default by this formula: $$P(V_T < B) = N \big[ \frac{\ln\frac{B}{V_0} - (\mu-\frac{1}{2}\cdot\sigma^2)T}{\sigma\sqrt{T}} \big]$$ I have ...
1
vote
0answers
26 views

What is the difference between a three month return and a quarterly return?

I am looking at VGENX, and this product has first-quarter and three-month returns of 7.8% and 20.3%, respectively, according to zacks.com. I take it as the three month return is calculated taking into ...
1
vote
0answers
24 views

A question about spot rate forward rate and swap rate [closed]

A term structure is given as follows. The market convention is compound interest, that is, the present value of one unit at time T is...
1
vote
2answers
60 views

hedge a USD index into EUR

Say I have the daily index levels for the S&P. It is then very simple to calculate the daily returns. I however want to calculate the hedged returns into Euros. I have the daily exchange rates ...
1
vote
1answer
41 views

Regressing using Fama-French portfolios with small amount of stocks

I'm doing some research for my thesis and I was wondering if it is possible to only use monthly stock price data for 22 stocks and construct Fama-French portfolios out of them and then regress? What ...
3
votes
1answer
66 views

Deriving $u$ and $d$ coefficients using binomial tree approach

From Hull's book when deriving coefficients of up and down movements, $u$ and $d$, of a stock price using binomial tree approach, at some point we get the following equation: $$e^{\mu\Delta t}(u+d) - ...
1
vote
0answers
18 views

Using Put Volatilities to Estimate Firm Leverage/Credit Risk

This paper by Hull, Nelken and White uses implied volatilities in structural credit risk models to back out a market-implied leverage ratio. CreditGrades has a similar implementation using equity ...
1
vote
1answer
29 views

American option - Upper bound

I have computed a lower bound for an american option through longstaff and schwartz's algorithm. Now I have to compute the upper bound as andersen and broadie does in their article. Can anybody help ...
1
vote
1answer
33 views

Who/What is a promoter of a company?

As Investopedia defines it: A promoter is an individual or company that, for a fee, helps raise money for some type of investment activity. Most often, promoters raise money for a company through ...
1
vote
1answer
102 views

How to calculate bond yield in QuantLib - Python

I want to calculate yield of bond having market price and coupons. I try to replicate C++ from (https://mhittesdorf.wordpress.com/2013/03/03/introducing-quantlib-internal-rate-of-return/) in Python ...
1
vote
1answer
68 views

Arbitrage opportunity in discrete time

Say we have the following binary option $B$ on asset $S$ with strike K and expiration time T, assume also that the following relation holds at time $0$: $B > N*C(K,T)-N*C(K+1/N,T)$ Where $N$ is ...
1
vote
0answers
113 views

Trouble verifying roll rate model

I found this paper on roll rate analysis via a google search. I would post a link, but every page is stamped with "CONFIDENTIAL" at the bottom (humorous since it is easily found). In a nut-shell, ...
0
votes
1answer
71 views

Training data for Black Scholes

What sources of data suitable for training approximations to Black-Scholes are freely available to academics? My understanding is that the parameters to Black-Scholes are: share price strike price ...
3
votes
3answers
125 views

Real-time Tick Data API for the Italian Stock Market

Hello community. I am looking for a service that is able to provide real-time tick data (time&sales) for the contracts traded in the Italian Stock Market (Borsa Italiana). The service should ...

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