# All Questions

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Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ... 0answers 21 views ### How do derivatives affect capital structures? Yesterday, I was at a lecture where the speaker said that the impact of derivatives was often to make senior debt, in effect, subordinated debt (in terms of priority, recovery rates, etc.)? How do ... 0answers 50 views ### Tick Data Poisson Process I am trying to generate a custom tick index using two indices (Let's say australian index ASX 200 and Japenese Index NKY). Japan index ticks every 10 seconds...and australia ticks every 30/35 seconds. ... 0answers 66 views ### Which are the popular free/open-source charting controls? Recently i've tried SciChart and VisiBlox - beautiful charting tools. Is there any free or open-source tools for visualizing charts on C#? Thank you for answers. 0answers 206 views ### What's the practical difference between the Johansen vs Engle-Granger tests for cointegration? For the two-variable case, what are the practical differences between using the Engle-Granger procedure versus the Johansen test for cointegration? Is one universally more powerful than the other? ... 0answers 113 views ### What equation will convert implied yield volatility to implied price volatility? I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ... 0answers 49 views ### What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ... 0answers 122 views ### What happened to Mountain View Analytics? I stumbled over Thomas Cover's work on algorithmic portfolio selection; apparently, an outfit called "Mountain View Analytics" attempted to implement the suggestions from Cover's research. ... 0answers 66 views ### Effective simulation of multi factor Heston model Im looking for a quick way (as in runs quick, not necessarily is quick to implement) of simulating multiple square root processes for a stochastic volatility model, flexible enough to allow for ... 0answers 39 views ### Risk neutral measure for jump processes How can I construct risk neutral measure for option price if active price form is: $$S(t)=S(0)\left[\exp{σW(t)+(α-βλ-1/2σ^2)t+Q(t)}\right] ?$$ Here$W(t)$is a Brownian motion and$Q(t)$is a ... 0answers 65 views ### At-the-money Call Spread approximation In a trading manual I got during a course, the value of the ATM Call-Spread is approximated by$CS_{ATM}=\frac{1}{2}StrD+(F-m)\times\Delta CS$The lecturer skipped the part where he derived this ... 0answers 72 views ### Why is the LIBOR-market model free of arbitrage? Recently I have been reading a lot on the market models. One thing that keeps escaping me - why is the Libor-market model (LMM) assumed to e free of aritrage in continuous time ? To me this means ... 0answers 145 views ### Bond (yield curve) dynamics in the Forward-LIBOR-market-model The standard Libor-Forward-Market-Models provides a way of modelling the evolution of forward rates in time. However the model does not seem to be well suited for the modelling of zero-bonds. But ... 0answers 93 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 ... 0answers 28 views ### How can dividend protection be considered in the binomial model in pricing the convertible bond? If the convertible bond has dividend-protection, how can we cater it in the binomial model? If there is dividend protection at or above 1%, can we impose input of dividend yield of 1% in the ... 0answers 92 views ### Zakamouline Optimal Hedging of Options with Transaction Costs I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ... 0answers 113 views ### Practical implementation of Least Squares Monte Carlo (tweaks and pittfalls) The Longstaff-Schwartz LSM approach is nowadays ubiquitous(at least in the academic literature) in pricing path dependant derivatives. Up to now I have mostly worked with lattice methods. My ... 0answers 47 views ### Forecasting amount of slippage in executing option spreads Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ... 0answers 58 views ### The concept of an incomplete market While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ... 0answers 159 views ### Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility? From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ... 0answers 80 views ### Derivation of variance of Zhou (1996) volatility estimator Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ... 0answers 118 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? ... 0answers 58 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 ... 0answers 166 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 ... 0answers 81 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 ... 0answers 110 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 ... 0answers 45 views ### How to interpret CME's specification regarding grains options expirations? Looking at the contract specifications for Soybean Meal and Soybean Oil (same for Corn, Wheat, and other major stuff I checked) serial options on CME I see the following expiration rule: the last ... 0answers 102 views ### What R-packages for SOCP problems are there? Currently, I am looking deeper into the topic of second-order cone programming. Could you suggest packages that solve SOCP-problems in R? With your answer, please provide a short description of ... 0answers 110 views ### Correlation between idiosyncratic residuals and forward returns The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ... 0answers 91 views ### How to reproject rates risk on a subset of tenors Is there a standard method (statistical or model based) to reproject rates risk obtained on a full set of tenors onto a smaller subset of tenors ? Let's imagine that I got a delta in the following ... 0answers 86 views ### Best method for determining the market value of a stock before it is issued I am attempting to determine the hypothetical market value of a stock for a company emerging from bankruptcy as of a date prior to actual the issuance of the stock. For example, let's say the formerly ... 0answers 2k views ### Difference between S&P 500 index and S&P 500 Total Return index? There's the standard S&P 500 index (SPX) and the rarer used S&P 500 Total Return index (SPTR). If you compare graphs, you'll find that the latter grows faster. Supposedly, SPTR assumes ... 0answers 51 views ### Recreate Positions after downtime. Suggestions requested We are trying to be able to get back to the Position state when our software goes down unplanned during the day. So far it seems we can get all our bought and sold quantity based on execution log we ... 0answers 161 views ### Potential pitfalls in the use of correlation Background: The red line is an index, which goes from 0 to 100, measuring uncertainty in the markets. The dark blue line is a price index, which has a lower bound at 0, and virtually no upper bound. ... 0answers 80 views ### Optimizing stochastic functions numerically Is there an efficient and commonly used optimization method for "more complex" investment strategies. For instance, say you have a function$f(X_1,...,X_n,c,v)$where the$X_k$'s are your random ... 0answers 114 views ### Can I trade the volume of a security or index? Is it possible to trade a derivative product priced on the volume traded of some underlying security or index? Does such a derivative exist on any exchange traded markets? Or anywhere? 0answers 190 views ### How to properly take averages to reduce data in regression/panel data analysis I'm trying to do a regression on my panel data. Say I have T=3500 days of data and N=125 firms. Since Matlab get's major memory issues (which I try to prevent by the usual solutions as seen on the ... 0answers 153 views ### What is the market impact of OTC trading ETFs? I read an interesting statement here: "If an ETF’s market price tracks its NAV well, it is likely to have a small market impact. On the other hand, if the market price is more volatile than ... 0answers 56 views ### Calculating the error of a Trinomial Model I've been trying to find a formula to obtain the maximum relative error a trinomial model with n timesteps will incur given all other inputs as compared to the standard BSM model. I'm concerned mostly ... 0answers 189 views ### Which method is implemented by Excel's YEARFRAC for ACT/ACT? I know the algorithm used by Excel to calculate the YEARFRAC(startDate, endDate, basis) for basis=1. Excel calls the method "act/act". A Java re-implentation of Excel's algorithm can be found at ... 0answers 268 views ### Is this methodology to calculate Alpha using multi-factor regression model correct? I am trying to find out Historical Alphas of a bunch of fund returns${F_i}$by Using Regression Model$(stepwise)$with regressors as its underlying exposure-returns(risk-free rate subtracted) i.e. ... 0answers 107 views ### Pre-Trade Slippage Costs For Option Spread Execution Is there a quant model that can help estimate how much slippage one would have to give up in order to get an "option spread" (vertical, butterflies, etc.) order executed? What factors should one look ... 0answers 116 views ### CVA DVA and Bilateral adjustment I've already computed the CVA\DVA and now I would like to compute the bilateral adjustment. Does anyone know the relationship between the CVA\DVA with the bilateral adjustment? I mean a paper, ... 0answers 127 views ### Portfolio optimization with absolute position constraints I'm looking to optimize a portfolio maximizing expected return for a particular risk budget, but with absolute constraints on the individual instrument positions. I've been experimenting with QP, ... 0answers 191 views ### What structural model does Reuters use for default probability? When using Reuters, for each listed company there is credit tab that shows relevant information in terms of credit default. There is also rating class as well as one year default probability. It is ... 0answers 146 views ### Good criteria to sort state-space$\beta_{t}$according to Kalman filter output Let the usual state-space linear model (without constant term for the sake of simplicity):$y_{t}=\beta_{t} X_{t}+\epsilon_{t}$If we use Gaussian Kalman filter to estimate$\beta_{t}\$ we get ...
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I am trying to help a friend with her thesis on Counterparty Credit Risk where she intends to have a somewhat lengthy treatment on Credit Valuation Adjustment (CVA). Specifically I am looking to help ...
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### Do some option pricing models allow for misspecification and what does it mean?

This is to some extent a theoretical question and maybe we can work together to produce some input and output. Diverse option pricing models are reported to be misspecified in various studies. One ...