2
votes
1answer
185 views

How to value non-libor swaps (not basis swaps)?

What discount curve should be used for a swap with a fixed leg and variable leg, where the variable leg is based on rate other than Libor (in my case 1-year deposit rate). Hull (5th edition, page 595) ...
9
votes
10answers
17k views

What is the difference between Option Adjusted Spread (OAS) and Z-spread?

I am preparing for the CFA level 2 exam, I got confused by the concept Z-spread and OAS. When a call option is added to a bond, since it is not favorable to the bond buyer, they would require more ...
3
votes
2answers
138 views

What mathematical characteristics are required from the asset price process in order to stay within the RNP framework?

I'm currently doing a course in derivatives pricing and I'm having some trouble wrapping my head around the sweet spot where theory meets reality in terms of Risk Neutral Pricing. I know that the ...
5
votes
1answer
741 views

Automated 10-K XBRL data grab using the SEC file structure

I would like to write a program that takes as input a list of CIK/year/quarter entries. The program should iterate through the list and, for each entry, grab XBRL financial data from the SEC website ...
3
votes
0answers
290 views

Is there a standard method of scaling alpha forecasts to t-cost estimates?

Given a set of monthly alpha forecasts (i.e. standardized z-scores from a multi-factor return model) and a non-linear market impact model (or more specifically, its piecewise-linear approximation), is ...
4
votes
1answer
5k views

Deriving spot rates from treasury yield curve

I've been experimenting with bond pricing using easily available data (treasury auction prices and treasury yield curves on treasury direct). At first I assumed that I could use the components yield ...
5
votes
2answers
1k views

How are momentum and reversion long/short strategies dynamically combined in trading?

I'm trying to understand how to combine two strategies dynamically in trading: one mean-reversion and the other momentum. One way (also the simplest one) of doing this is by scaling/normalizing ...
7
votes
1answer
705 views

application of lie groups in finance

Can some one kindly go over some of the applications and use of Lie groups in finance? The math is very rigorous and I don't fully understand it or the potential it could have. Let me share some ...
3
votes
3answers
641 views

Do I need a copula to accurately estimate the VaR of a portfolio of risky assets?

I need to estimate the daily VaR of a portfolio of various exposures in $n$ risky assets (say equity futures). The simplest approach, I think, would be to just estimate VaR from a multivariate normal ...
8
votes
2answers
765 views

Analytical relationship between a covariance matrix and cross-sectional dispersion

Given an expected returns vector and a covariance matrix, one can perform a joint draw and measure the average cross-sectional variation as the standard deviation across returns for a particular joint ...
12
votes
10answers
5k views

Is “eoddata” a good data source?

Not sure if this is a relevant question for site, but I am looking to move to www.eoddata.com as my data source. If anyone has used it, can you tell me how the data quality is ? I am currently ...
2
votes
0answers
133 views

Optimal stop-loss reinsurance

What are some methods for optimizing stop-loss reinsurance? I've found an article on the minimization of the variance. I also know about the method of average-at-range. Can we apply a method for ...
5
votes
2answers
2k views

Implied Volatility from American options (binomial)

I am trying to get the implied volatility from options on commodity futures and I know it's possible to get it from the binomial american options (on an non-dividend paying stock). I believe it is ...
4
votes
3answers
747 views

What are the applications of cointegration?

We have had several posts on cointegration, and I must admit that I have only seen them mentioned here and there but I have no real experience using this concept. My question is pretty simple: how do ...
3
votes
2answers
480 views

Distribution for High Kurtosis

Can you please advise which distribution to follow when your skewness is 0.28 and Kurtosis value is 51. Since it's leptokurtic and positively skewed I would like to fit distribution and also wanted to ...
-1
votes
1answer
1k views

Can end-to-day trading be profitable? If not, why? [closed]

Many academics argue that end-to-day trading, where you go long or short before opening and sell your security at the end of the day, is not profitable. Various explanations are given for this ...
8
votes
1answer
596 views

Quantitative before/after or financial engineering studies of a bid or ask tax?

Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data? If so, what were the quantitative results or ...
3
votes
1answer
239 views

Application of ACD models

I have been playing around with autoregressive conditional duration (ACD) models and I have a nicely working R based implementation using real high frequency data (trades only data). However, what's ...
1
vote
1answer
537 views

Two prices pass the cointegration test but there is a trend. How to check stationarity?

Below is a spread built with two ETFs that pass the cointegration test i.e. Adjusted Dickey Fuller, adfTest(type="nc") in R's fUnitRoots with a p-value < 0.01. The red line is the trendline. What ...
6
votes
2answers
453 views

Choosing the time-frame to test for cointegration

Is there a technique to choose the time-frame for a cointegration test (eg Augmented Dickey-Fueller's)?
16
votes
3answers
521 views

Tests that any system must pass to be taken seriously

In an interview from '96 Bill Eckhardt points out that there are tests that any system must pass to be taken seriously. That is: tests for (1) overfitting, (2) post-dictiveness, (3) maldistribution ...
7
votes
1answer
387 views

calculating arbitrage-free ranges based off outright, spread, and fly prices

This may be more applied math rather than finance focused, but I'm curious about using linear algebra techniques for generating possible arbitrage signals among outright instruments and spreads/flies ...
12
votes
2answers
2k views

statistical arbitrage option overlay strategies / volatility trading

Here's an interesting trading puzzle that I would love to get the community's input on. Let's say there exists an alpha signal that does a good job of sorting equities expected excess returns over ...
8
votes
1answer
241 views

Do weights from portfolio theory contain bias?

I want to experiment with some portfolio modelling and I was wondering if you guys could help me with something. If I try to estimate and implement the traditional two-fund portfolio consisting of one ...
7
votes
2answers
984 views

How to calculate the most realistic historical option prices with additional publicly available parameters

This is a follow up question of this one. My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes. The ...
3
votes
4answers
1k views

Ways of treating time in the BS formula

The Black-scholes formula typically has time as $\sqrt{T-t}$ or some such. My questions: What is the granularity of this? If we treat $t$ as the number of days, then logically on the day of expiry, ...
4
votes
2answers
431 views

Does put-call parity hold for a compound option with underlying American option?

Say there is an American put option that expires $N$ months from today. A call-on-put (CoP) option provides the owner the right to buy the American put option in exactly $M < N$ months (but no ...
5
votes
2answers
359 views

A few questions about signs of the Greek letters

Rho is the partial derivative of the value of call option, $C$, w.r.t the riskfree interest rate $r$: $$\rho \equiv \frac{\partial C}{\partial r}$$ In the standard B-S formula this term is positive, ...
4
votes
1answer
201 views

Are there any well known methods of testing through-the-cycle rating systems?

Rating systems, as defined by the Basel II Accord, can be classified into two broad types - through-the-cycle (TTC) or point-in-time (PIT) - and the probability of default predicted by such a system ...
1
vote
0answers
146 views

what is a typical way forex brokerages can provide cheap leverage for their customers?

I'm not very well read in the area of high finance but I'm curious how forex brokerages are able to provide the backing for leverage that they can provide to customers. Is it possible to do this ...
2
votes
1answer
1k views

How to build an execution trading system with CQG API?

I am currently using CQG for spread trading and have a spread trading strategy in CQG chart. I am trying to automate my spread trading strategy in CQG, but CQG told me to look at CQG API samples to ...
3
votes
1answer
151 views

Parameter estimation using martingale measures - include real world data?

Please note: I posted this in nuclearphynance first, but didn't get any replies. For desks which sell exotics it is common practice (as far as I know it) to calibrate the model (Stochastic ...
1
vote
2answers
343 views

What is the minimum history data size to get an accurate EMA/ MACD for latest history point

Currently, I have history data for 10 years. Most of the time, I only interested in getting EMA/ MACD for the last history point (means yesterday point). Instead of using entire 10 years history, I ...
5
votes
1answer
404 views

Are there any tools or useful algos for identifying corner portfolios?

Let's say I am performing mean-variance optimization subject to some weight constraints. I'd like to identify the set of corner portfolios so that I can interpolate the entire efficient frontier. A ...
3
votes
1answer
2k views

C++ training from scratch to quantitative trading? [closed]

I have been trading for decades, and I have a solid knowledge of technical analysis but also VB as professional programmer. I would like to start learning C++ from scratch, then specialised in C++ ...
5
votes
1answer
217 views

looking for regulations regarding stock symbol reuse in the US

in june 2009, GM has filed for bankruptcy. trading has moved from NYSE to OTC pink sheets, and the symbol changed to GMGMQ and later to MTLQQ. in november 2010 a new GM symbol started trading on NYSE. ...
4
votes
4answers
1k views

Is there a charting API which allows to replicate Bloomberg chart tool features?

I believe that most of us will agree that being able to compute values is only part of our job, as we would also like to be able to display them nicely in order to better understand or help ...
9
votes
6answers
5k views

Is there any thing out there as a substitute for KDB?

thanks a lot for your discussions on the original post. following your suggestions, let me re-phrase a bit : kdb is known for its efficiency, and such efficiency comes at a terrible price. However, ...
12
votes
3answers
665 views

What are some research articles on using principle components to generate alpha?

Here's an example by Marco Avellenada from NYU titled "Statistical Arbitrage in the U.S. Equities Market". The idea of this paper involves capturing mean reversion in the residual returns of a ...
3
votes
0answers
166 views

How companies choose earnings release dates, & effect on Implied Volatility

A company's earnings release date significantly affects weekly or monthly option prices/implied volatility. For companies that typically release earnings on the cusp of monthly options expiration, ...
3
votes
1answer
278 views

Inferring highest bid and lowest ask from forex trade data

I have historical trade data for every trade on a forex exchange, whcih includes the following data: Time the trade was made Amount, in currency A Price, in currency B I have also used this to ...
3
votes
2answers
195 views

If the distribution of returns in symmetric, why not use a coin toss, small risk & high reward?

If the distribution of returns is symmetric then why not use a coin toss to decide whether to buy or sell Calculate the average velocity of the market (ATR - in technical analysis) Place a stop ...
5
votes
2answers
944 views

Constructing an approximation of the S&P 500 volatility smile with publicly available data

Besides of the VIX there is another vol datum publicly available for the S&P 500: the SKEW. Do you know a procedure with which one can extrapolate other implied vols of the S&P 500 smile with ...
5
votes
1answer
174 views

what are the most common explanations of the January effect?

The "january effect" is one of the most widely recognized market anomalies. In a nutshell, it refers to the empirical observation that January appears to have systematically higher returns than other ...
3
votes
0answers
114 views

Are there canonical test cases for testing of pricing engines

Short intro: We are developing pricing engines for the calculation of market risk in a Solvency II solution, including bonds, callable bonds, cds, options, futures and so on. Are there any canonical ...
5
votes
4answers
643 views

How to optimize a portfolio under *both* maximum diversity ratio and minimum variance

I have a follow-on question to questions that appeared here and was not sure if the right way was to ask in the comments or post a new question. My question is: how can I optimize a portfolio to suit ...
5
votes
3answers
415 views

Means of inferring trading algorithms from competition trade data

I'm analyzing trades from several participants in a trading competition, and I was wondering - are there known mechanisms for analysis and inference of the logic in a set of trades done by one ...
5
votes
2answers
207 views

How many data points are required to perform a fitting of GPD?

A friend of mine told me that their firm is using Extreme Value Theory (EVT) to compute value of the Expected Shortfall 99% of a portfolio for their asset allocation process. To do so, they try to fit ...
1
vote
1answer
315 views

Creating a financial market

Let's say I wanted to create my own financial market where people could buy with real money shares in a real physical product such as, for example, a rock band. If the value of the rock band goes up, ...
7
votes
3answers
718 views

What is the impact of high-frequency trading on market depth, liquidity, and volatility?

On the surface, bid-ask spreads are far more narrow than even several years ago. However, during periods of financial stress liquidity seems to vanish. Also, the increasing amount of fragmentation ...

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