15
votes
4answers
811 views

Approximately what proportion of a stock’s volatility is explained by market movement?

Assume we decompose the daily (log) returns of a stock as beta times market movement plus an idiosyncratic part. If this is done ex-ante, what proportion of the variance is explained by the market ...
15
votes
8answers
7k views

Probability of touching

For a vanilla option, I know that the probability of the option expiring in the money is simply the delta of the option... but how would I calculate the probability, without doing monte carlo, of the ...
15
votes
2answers
3k views

What type of analysis is appropriate for assessing the performance time-series forecasts?

When using time-series analysis to forecast some type of value, what types of error analysis are worth considering when trying to determine which models are appropriate. One of the big issues that ...
15
votes
3answers
3k views

How to cluster stocks and construct an affinity matrix?

My goal is to find clusters of stocks. The "affinity" matrix will define the "closeness" of points. This article gives a bit more background. The ultimate purpose is to investigate the "cohesion" ...
15
votes
7answers
5k views

What are the best Journals & Conferences in Quantitative Finance?

What are some of the most prominent journals, conferences and publishing venues in Quantitative Finance research? Where can I find information more information about them? (e.g. impact factor and ...
15
votes
7answers
1k views

Are there ways to measure the risk aversion of a representative investor, based on publicly available market data?

Are there ways to measure the risk aversion of a representative investor, based on publicly available market data? Public available data could include asset price, volume, and flow data, and may be ...
15
votes
2answers
2k views

How to update an exponential moving average with missing values?

Say you have an Exponential Moving Average being continuously updated over a time series using 1-second-long time periods. What should happen if there is no value for the next second, e.g. there were ...
15
votes
2answers
8k views

How to derive the implied probability distribution from B-S volatilities?

The general problem I have is visualization of the implied distribution of returns of a currency pair. I usually use QQplots for historical returns, so for example versus the normal distribution: ...
15
votes
4answers
4k views

Techniques to optimize the placement of orders in market making strategy?

Market making often requires placing and canceling a lot of orders. You have to buy and sell nearly simultaneously, so you need to move orders pretty often to beat other traders. But I would like to ...
15
votes
2answers
1k views

Why isn't the Nelson-Siegel model arbitrage-free?

Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e. $$dX_t=\sigma dB_t-AX_tdt$$ and the spot interest rate evolves by the following equation: $$r_t=a+b\cdot X_t.$$ After solving for $X_t$ ...
15
votes
3answers
1k views

Is there a way to estimate (predict) the half life of a quantitative trading system?

Usually even good performing quant trading strategies work for a while and then return start to shrink. I see two reasons for that which would probably give rise to different analysis: The Strategy ...
15
votes
4answers
625 views

Variable Selection in factor models

Let's say you have a dependent variable and many independent variables. What are the preferred metrics for sorting and selecting variables based on explanatory power? Let's say you are not concerned ...
14
votes
8answers
3k views

What are some good technical and non-technical books for a math lover to get in to quantitative analysis? [closed]

To get the ball rolling... I will answer this question this evening For people aware & unaware I think it would be a great way to introduce the group, resources for fundamental knowledge & ...
14
votes
5answers
4k views

What exactly is meant by “microstructure noise”?

I see that term tossed around a lot, in articles relating to HFT, and ultra high frequency data. It says at higher frequencies, smaller intervals, microstructure noise is very dominant. What is ...
14
votes
3answers
14k views

Correlation between prices or returns?

If you are interested in determining whether there is a correlation between the Federal Reserve Balance Sheet and PPI, would you calculate the correlation between values (prices) or period-to-period ...
14
votes
2answers
1k views

What are the limitations of Gaussian copulas in respect to pricing credit derivatives?

The practice of using Gaussian copulas in modeling credit derivatives has come under a lot of criticism in the past few years. What are the major arguments against using the copula method in this ...
14
votes
5answers
6k views

portfolio optimisation with VaR (or CVaR) constraints

I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR) How can I ...
14
votes
6answers
3k views

Formal proof for risk-neutral pricing formula

As you know, the key equation of risk neutral pricing is the following: $\exp^{-rt} S_t = E_Q[\exp^{-rT} S_T | \mathcal{F}_t]$ That is, discounted prices are Q-martingales. It makes real-sense for ...
14
votes
4answers
3k views

Is there any good research on support and resistance?

Could somebody advise me on where to find good literature on the justification or motivation for using support and resistance lines - and also lines of maximums and minimums. In finance, it is ...
14
votes
7answers
16k views

What open source trading platform are available

I would like to compile a list of open source trading platforms. Something that would give an overview and comparison of different architectures and approaches.
14
votes
4answers
5k views

Why is the VIX futures market usually in a state of contango?

I'm a VIX newbie and I'm trying to understand why the VIX futures market is usually in a state of contango. All I can figure is that the sellers of VIX futures contracts demand high "prices" (because ...
14
votes
6answers
12k views

Are there any good tools for back testing options strategies?

There are all kinds of tools for backtesting linear instruments (like stocks or stock indices). It is a completely different story when it comes to option strategies. Most of the tools used are ...
14
votes
3answers
6k views

Is there an intuitive explanation for the Feynman-Kac-Theorem?

The Feynman-Kac theorem states that for an Ito-process of the form $$dX_t = \mu(t, X_t)dt + \sigma(t, X_t)dW_t$$ there is a measurable function $g$ such that $$g_t(t,x) + g_x(t, x) \mu(t,x) + ...
14
votes
3answers
5k views

Is there an all Java options-pricing library (preferably open source) besides jquantlib?

I am looking for an all-java implementation of black scholes, preferably open source. I found jquantlib and quantlib (C++). Any other recommendations? The jquantlib site seems to be down. I'd prefer ...
14
votes
4answers
6k views

Free intra-day equity data source

Are there any free data source for historical US equity data? Yahoo finance has daily prices but I'm looking for something more granular and goes back 2 or more years (doesn't have to be close to tick ...
14
votes
4answers
2k views

What books should any quantitative portfolio manager or risk manager have as reference? [closed]

I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
14
votes
2answers
809 views

Duality between constant rebalanced portfolio (CRP) and corresponding derivative

One of the greatest achievements of modern option pricing theory is finding corresponding dynamical trading strategies in linear instruments with which you can replicate and by that price derivative ...
14
votes
3answers
9k views

What is a Heat Rate Option?

I tried a search with google but I can't find a clear definition of what a Heat Rate Option is. I would appreciate if someone could explain to me what this type of option is. My understanding is ...
14
votes
4answers
7k views

Is statistical arbitrage on FX possible?

Do you know of any papers which consider pairs trading (or statistical arbitrage) on foreign exchange? I couldn't find any. I asked this question on several forums and got no reply. Thus I guess this ...
14
votes
1answer
3k views

How do I compare implied and historic volatility?

what would you suggest are the starting points for comparing, in an easy, visual way, implied and delivered volatility surfaces? I'd like to see what the differences are between the historic surfaces, ...
14
votes
1answer
5k views

Which approach to estimating fundamental factor models is better, cross-sectional (unobservable) factors or time-series (observable) factors?

There are many approaches to estimating fundamental factor equity models. I would like to focus on two traditional methods: The time-series regression approach of Fama and French. Factors are ...
14
votes
2answers
523 views

Which interest rate model for which product

Given the multitude of existing interest rate models (ranging from simple to very complex) it would be interesting to know when the additional complexity actually makes sense. The models I have in ...
14
votes
2answers
2k views

Cleansing covariance matrices via Random matrix theory

I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
14
votes
3answers
260 views

Regression model when samples are small and not correlated

I received this question during an onsite interview for a quant job and I'm still scratching my head on how to solve this problem. Any help would be appreciated. Mr Quant thinks that there is a ...
14
votes
0answers
3k views

Algorithm to fit AR(1)/GARCH(1,1) model of log-returns

I am fitting numerically an AR(1)/GARCH(1,1) process to index and stock log-returns, $r_t=\log(P_t/P_{t-1})$, where $P_t$ is the price at time $t$, and thus far am not clear on where the observed log ...
14
votes
2answers
1k views

Parameter estimation of Ornstein–Uhlenbeck and CIR processes

I would like to estimate Ornstein–Uhlenbeck process' parameters via Kalman filter. My process is the following one: $\text{d}x_{t}=\alpha(\theta-x_{t})\text{d}t+\sigma\text{d}W_{t}$ I'm interested ...
13
votes
7answers
4k views

What C++ math libraries are typically used by quants?

Before you mark question as off-topic, please read it - it is, actually, quant-related. Basically, I'm working on an app that spits out a lot of C++ math. When it comes to simple things like ...
13
votes
3answers
4k views

How are limit orders selected from the order book?

I'm sure there is a simple answer to this but I haven't had any luck with searches. I'm just wondering when someone places a market order which order(s) from the limit order book are selected to fill ...
13
votes
4answers
27k views

How to compute Implied Volatility Calculation?

We all know if you back out of the BS option pricing model you can derive and solve what the options is "implying" as its volatility. However, what is the formula used to derive Implied Volatility ...
13
votes
6answers
3k views

Why does the VIX index have *any* correlation to the market?

It appears that the log 'returns' of the VIX index have a (negative) correlation to the log 'returns' of e.g. the S&P 500 index. The r-squared is on the order of 0.7. I thought VIX was supposed to ...
13
votes
4answers
1k views

HFT: What is the big differentiator in comparison to other time scales?

High Frequency Trading (HFT) seems to be the big money making mystery machine these days. The purported source of unlimited floods of gelt pouring into the investment shops using it. For me, HFT is ...
13
votes
5answers
2k views

is beta of a portfolio always meaningful?

Consider the following strategies: a stat arb strategy with no overnight exposure, but significant market exposure intraday. a market timing model which is always long or short the market. etc is ...
13
votes
4answers
3k views

Is there a standard model for market impact?

Is there a standard model for market impact? I am interested in the case of high-volume equities sold in the US, during market hours, but would be interested in any pointers.
13
votes
6answers
25k views

How to check if a timeseries is stationary?

I'm using KPSS Method to check if the series is stationary, but I would also like to use another test to confirm if the series is stationary or not, what method coudl I use?
13
votes
8answers
1k views

Measuring liquidity

While liquidity is one of the key figure of financial markets, It seems to be very difficult to measure. Volume is sometime used as a proxy but can sometimes be completly irrelevant. Could you point ...
13
votes
3answers
3k views

At what point does someone using technical analysis become a Quant?

Sorry if the question sounds rough. It's not my intention to devaluate something I've not yet understood like Quantitative Finance. So to keep it simple: is Quantitative Finance a science, like ...
13
votes
3answers
3k views

When does delta hedging result in more risk?

There's a question in an interview book saying "when can hedging an options position make you take on more risk?" The answer provided is that "Hedging can increase your risk if you are forced to both ...
13
votes
4answers
3k views

How do you evaluate a covariance forecast?

Suppose you have two sources of covariance forecasts on a fixed set of $n$ assets, method A and method B (you can think of them as black box forecasts, from two vendors, say), which are known to be ...
13
votes
3answers
997 views

How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction ...
13
votes
2answers
280 views

How reliable is Benford's Law in forecasting crises?

I was recently reading an article about how financial accounting has increasingly deviated from the ratios expected by Benford's Law. (Benford's Law and Decreasing Reliability). The author discusses ...

15 30 50 per page