All Questions

2answers
383 views

How to calculate conversion parity for convertible bond?

Can someone explain how can I calculate the parity of this convertible bond? I know the formula is Current price of common stock x Conversion Ratio, but it doesn't seem to be right in this picture.
2answers
48 views

Initial holdings of bonds with delta hedging (Black Scholes model)

Consider the Black Scholes model so $$dS_t = \mu S_t dt + \sigma S_t dW_t, \;\;\; dB_t = rB_t dt$$ I want to delta hedge an European call option with strike price $K$ and strike time $T$. It is known ...
1answer
152 views

Execution quality for illiquid securities

The SEC's execution quality statistics measurements (Rule 605) arguably does a poor job at measuring the execution quality of ...
1answer
77 views

can an fx forward price simply be divided into 1 to quote the inverse?

Qu 1. Say I ask for EURUSD 1 week and get prices: 1.120986 / 1.120216 Does that mean to price USDEUR 1 week I can divide 1 / 1.120216 and 1 / 1.120986 and get rates: 0.8921 / 0.8927 Or is that ...
0answers
101 views

Callable bond price sensitivity to Hull-White volatility changes

I'm using classic Hull-White model for short term interest rate dynamic: $$dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$$ (Notation is quite intuitive, anyway I am using the same as Wikipedia ...
1answer
21 views

Raw (level) variable is significant while log return is not significant

I know this might be an "amateur" question, but I am pretty surprised to see the following fact: I have a dependent variable, let's call it Y. Then I have an independent variable, let's call it X. ...
1answer
132 views

1answer
118 views

Tests for Mean Reversion in a Portfolio Rebalancing

On a single time series one can run a Dickey-Fuller test to determine if the asset is mean reverting or at least has been mean reverting during your sample. Is there a way to test for mean-reversion ...
2answers
77 views

1answer
92 views

Implied rate of a bond question

A 2 year bond, yield 6%. A 1 year bond, yield 4%. What's the implied rate for the bond that starts one year from now?
0answers
60 views

Need help understanding basics of cash flow engineering

I'm studying Financial Engineering, a subject I'm completely new to. I'm using Principles of Financial Engineering 3rd Edition and trying to solve the exercises ...
5answers
299 views

Kurtosis in asset logarithmic returns

Assets such as stocks usually display kurtosis in their logarithmic returns. However, their logarithmic returns in a time interval $n$ are the sum of smaller logarithmic returns in $1/n$ time ...
1answer
150 views

Seeming arbitrage in excess reserves

In the US banks are required to store 10% of their deposits in cash in the form of Fed Funds. Due to misbalance of demand and supply, some banks borrow such cash from others; the volume averaged ...
1answer
106 views

Vendor data aggregation for Options on Futures

Have anyone managed to automate data consolidation between Reuters and Bloomberg for Options on Futures? Are there any common attributes that these vendors share in this particular asset class that ...
1answer
81 views

Real-time Tick Filtering

Is anybody aware of any papers regarding tick/quote filtering algorithms. I'm aware of the Olsen stuff, but I'd prefer something with fewer free parameters.
2answers
147 views

How do you calculate price of non-existant call option on commodity future

I've been stumped on this for awhile now. I'm trying to determine the price of a call option on a commodity futures contract that expires in the future. My issue is that while the future's contracts ...
1answer
75 views

Binary Option valuation problem in R using RQuantLib; also result validation aspect

When I am trying to value Binary Option using RQuantLib I am not getting all the greeks for exctype "american" wheras "european" exctype is fine. What is the problem here ? ...
2answers
73 views

How does tranching cause leverage?

I've read that leverage is created with the tranches of a CDS index because the more junior tranches have more risk than the index. I get that the more junior the tranche the more the risk, but I don'...
1answer
74 views

Exchange rate conversion [closed]

If the EUR/USD exchangerate fell by -0,96%, how much has the USD/EUR exchange rate increased? According to the below charts the number would be +0,97% (currently) but I cant figure out how these ...
1answer
52 views

Multiperiod return formulae with dividends

I have a question about returns when dividends are 'paid'. Firstly, will write down some definitions: Let $P_t$ be the price of an asset at time t. Assuming no dividends the net return over the ...
2answers
128 views

What do you do with low r-squared when calculating high-frequency beta

I am calculating a high-frequency beta. For example I have 90 days of data of the S&P and GOOGLE and I have 10-minute percent returns for each instrument. Each day has 34 10-minute percent returns ...

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