0
votes
2answers
69 views

returns of Bonds and exchange rates

which are the best distributions in order to model the bonds and exchange rate returns distributions. I am searching for a distribution such as the log-normal one of the stocks ( N(m-0.5*v),Sqrt[v])
1
vote
1answer
62 views

bootstrap asset allocation

I want to ask if the bootstrap method for asset allocation is preferable. For instance, suppose that we have data for the past returns for two stocks. Is it wise to generate the efficient frontierby ...
5
votes
1answer
163 views

Calibration Merton Jump-Diffusion

Consider the following SDE $dV_t = rV_tdt +\sigma V_t dW_t + dJ_t$ where $J_t$ is a Compound poisson process with log-Normal jump size $Y_i$. How am I supposed to calibrate this model to CDS ...
1
vote
0answers
37 views

Hypothesis Testing for Portfolio Weights

Investigating international diversification is an ongoing topic in portfolio allocation literature. Britten-Jones and Kempf-Memmel , for example, use derived properties of the distribution of ...
0
votes
0answers
139 views

Vanna-Volga Adjustment

I'm reading Uwe Wystup's "FX Options and Structured Products" to understand Vanna-Volga pricing, which, in his book Chapter $\S3.1$ is called "The Trader's Rule of Thumb". I generally got the idea ...
2
votes
0answers
61 views

Variance of a stochastic integral

Ok guys, I'm new to stochastic calculus and I did an exercise that I don't know if it is correct, so I need somebody with more experience to check if it is true. Compute the variance of the R.V. ...
2
votes
1answer
134 views

Effect of volatility on the delta of a call option

In the book 'Dynamic Hedging', Nassim Taleb writes: ...
2
votes
0answers
56 views

How to compute/find the volatility of an index like the S&P 500 to be used to control risk exposure? [closed]

I've asked two related questions. First this one on the money stack exchange and this one on the math stack exchange. But have not yet found a complete answer. Given an index such as the S&P ...
1
vote
3answers
662 views

Difference between ito process, brownian motion and random walk

Can someone explain to a non-math person (myself) what is the difference between these three? If they are so different that a comparison does not even make sense, please point it out. 1.Ito process ...
1
vote
3answers
529 views

How can put options be more expensive than call options in an efficient market?

I noticed that for some securities, puts were more expensive than calls (with same expiration). For example, suppose the underlying security is trading at 50. A put with a strike of 45 is more ...
1
vote
0answers
53 views

Relation between Parkinson number and historical volatility

In his book 'Dynamic Hedging', Nassim Taleb gives the relation: P = 1.67*historical volatility, where P is the Parkinson number. What is the basis of this relationship. Does this hold under special ...
3
votes
0answers
98 views

How can a beginner trader make use of 'volatility of volatility'

For a beginner option trader in equity options, how can he use this metric that is provided by his broker/data vendor? How can he use this metric to gain an added understanding of the option ...
5
votes
2answers
133 views

Interpretation of Correlation

I have two geometric Brownian motions (GBMs) driven by the same underlying Brownin motion, namely \begin{align*} S_t^1 = S_0^1\exp\left(\left(\mu_1 - \frac{\sigma_1^2}{2}\right)t + \sigma_1 ...
2
votes
0answers
52 views

Bond yield: is it martingale with respect to risk-neutral probability measure of some numeraire?

Let $t$ mean current time, let $T_0, T_n$ mean two times such that $T_0\le T_n$, and let $y_t[T_0, T_n]$ mean the forward swap rate of a swap starting at $T_0$ and ending at $T_n$. (I am ignoring ...
1
vote
2answers
387 views

ASX level 2 data via API

Is anybody aware of Java/C++/Python API's available for ASX stock market depth? I'm currently using IB which is ok but has a number of limitations / issues - the one I care most about is the limit of ...
1
vote
0answers
142 views

How to calculate beta against a multi-asset benchmark

Lets say that I have a benchmark, $BM$ that consists of 3 assets- 30% asset $A$, 30% asset $B$ and 40% asset $C$. Now, lets further assume I am trying to construct a portfolio that uses $BM$ as its ...
5
votes
5answers
225 views

Math background required to understand geometric brownian motion

What mathematical concepts are required before I can understand what exactly is a Geometric Brownian motion as applicable to stock prices? I mean which branches of probability, calculus, statistics ...
1
vote
2answers
103 views

Is Trading in the Underlying Necessary for Replication?

In a simple one-period binomial model we have two possible payoffs: $f(S^u)$ and $f(S^d)$. To replicate this we must trade in two assets, usually the stock $S$ and the money market account (assumed ...
3
votes
0answers
108 views

Which kind of normalization to prefer before PCA (generic solution for any factor analysis)

I have financial assets with totally different volatilities, thus I must standardize them before PCA, otherwise, assets with high variance may be considered as principle components, which is wrong. ...
0
votes
0answers
17 views

Leveraged ETFs Holding Period; Compare LETF with DITM

Why the "standard recommendation" is that LETFs are only for short periods (< 1 day) while their performance charts indicate that the leveraging is retained once the period EXCEEDs several days? ...
0
votes
0answers
48 views

How does a stop loss affect the P/L of a trader

In his book 'Dynamic Hedging', Nassim Taleb writes: Problem: A trader is given a stop loss of 100,000 in any given month (he would have to close his books and go home until the end of the month). ...
8
votes
1answer
259 views

Pricing Treasury futures

I've recently learned that at the delivery of Treasury futures the short side can decide which of the $n$ Treasury bonds (with relevant maturities) to deliver. If the short side chooses to deliver the ...
7
votes
1answer
248 views

Speeding up computations: when to use Quasi and standard Monte-Carlo in pricing

I am familiar with the theory of Monte-Carlo techniques in the numerical integration, and recently I have started my experiments with these methods applied to derivatives pricing. I am using ...
2
votes
3answers
82 views

Questions on the relationship between option price and maturity

From the plot of volatility surface, as maturity goes up, the implied volatility will decrease. Dose it mean that options with the same strike have higher value when maturity is larger. If so why ...
2
votes
1answer
374 views

Using FX ATM/RR/BF Volatility to Estimate Smile

Suppose $S$ is some FX rate, EUR/USD say, and $\sigma_{S}(K,T)$ is the implied volatility for some option written on $S$, sourced from the surface $\sigma_{S}(\cdot,\cdot)$ (alternatively, consider ...
1
vote
1answer
75 views

Pie-chart (or alternative) representation with negative values/liabilities

I'd like to represent graphically/visually a fund/portfolio by something that resembles a pie chart. But... the fund/portfolio contains things that have negative value (think of liabilities such as: ...
6
votes
1answer
243 views

Variance replication using options

I would like to understand the intuition behind the following question: Why a certain weighted sum of prices of put and calls is equivalent to the implied variance of an underlying? A variance swap ...
2
votes
1answer
133 views

Test .mql4 (meta trader 4 editor) when the fx market offline

I am coding some simple .mql4 program, you know, the fx market is offline on weekend, and the market will be not shown in Meta trader 4 platform. I wanna test my program in meta trader 4 on weekend. ...
3
votes
0answers
278 views

Bloomberg scripting language (BLAN)

Did anyone work with Bloomberg scripting language (BLAN is the name I guess). If so is it really flexible and is it competitive with other valuation services (say Super Derivatives). Does it enable ...
2
votes
2answers
564 views

Bloomberg tick data timezone offset

I am using python to access the Bloomberg Desktop API and am running into issues with the timezone conversion for their tick data. The data they deliver is supposed to be UTC but there is something ...
0
votes
0answers
33 views

johansen cointegration test eviews interpreation

I am not sure whether i am interpreting the cointegration test correct. This is the test result : Because of the probability of the test i understand that my series are cointegrated of order 2. ...
0
votes
0answers
90 views

How do you calculate the asset drift rate in the Merton model? (used in N(-d2))

Can I replace it with the internal rentability rate? I only have the financial statements and some market data, but I can't find the expected returns anywhere. The goal is to calculate the probability ...
1
vote
1answer
78 views

FOMC Unscheduled Meetings

If you look at the FOMC announcement schedule here, you will see that since 2011, there have been 4 unscheduled meetings. By any chance, though they are "unscheduled" do market participants know one ...
2
votes
1answer
67 views

the incremental value of Kelly Criterion under difference circumstances

I know that the Kelly Criterion maximizes bankroll, but i was wondering how much value it contributes to the total return and under what circumstances. I'm trying to understand the difference between ...
7
votes
2answers
270 views

How to check that an interest rate curve is arbitrage free

I have 2 interest rate curves (LIBOR 3M and OIS). I want to create stress scenarios for those two curves. Is it possible that some scenarios will make my term structure arbitrageable? How can I test ...
5
votes
1answer
382 views

Multidimensional Ito's Lemma for Vector-Valued functions

Consider the vector of $n$ Ito processes $$ d \mathbf{X}_t = \mathbf{\mu}(\mathbf{X}_t,t)dt + \Sigma(\mathbf{X}_t,t)d\mathbf{W}_t $$ where $\mathbf{\mu} \in \mathbb{R}^n$ and $\Sigma \in ...
3
votes
1answer
84 views

List competitors for a given stock?

Where can I find a reasonably-priced or free API, database or CSV which contains a list of competitors for a given stock symbol? For example, I want to find competitors for various symbols, like ...
0
votes
0answers
45 views

Compare performance buy-and-hold strategies after stock-split

QUESTION: How should I analyze the statistical significance of the difference between two buy-and-hold strategies (or the relative performance) when the samples are not independent? Background: I ...
4
votes
1answer
79 views

Questions about exponential Brownian motion

Let $(\Omega,\mathcal{F},P)$ be a probability space, equipped with a filtration $(\mathcal{F})_{0 \leq t \leq T}$ that is the natural filtration of a standard Brownian motion $(W_{t})_{0 \leq t \leq ...
0
votes
1answer
43 views

Calculating or finding info about the value of a market? for example Cloud Storage [closed]

I am assembling a pitch which will aim towards investors by the end of this year/beginning of next year, and I need to gather information such as how much the Cloud Storage market is worth and how ...
2
votes
1answer
214 views

Mean reversion time estimation

I am new to mean reversion trading, and I would like to get some good references about how to estimate the time it takes to a mean reverting process to cross its long term mean.
-4
votes
1answer
42 views

Matlab loop statement is driving me mad [closed]

Can someone please help me out with this loop over here? Matlab simple refuses to consider the for o=k:k-20 statement inside the if statement. :pullingmyhair: ...
5
votes
1answer
167 views

Why Lie groups, differential geometry and string theory relate to MF?

I'm reading Peter Carr's "A Practitioner’s Guide to Mathematical Finance". When talking about the math used in mathematical finance, he mentions Lie groups, differential geometry, string theory. Can ...
2
votes
1answer
85 views

Black Scholes Model and Dividends

My question can be summarised as such: Consider a portfolio. Say it has a price $\Pi = x$. Portfolio consists of a stock and a sequence of call options underlying on the stock. It has been announced ...
6
votes
1answer
759 views

How to calculate the JdK RS-Ratio

Anyone have a clue how to calculate the JdK RS-Ratio? Let's say I want to compare the Relative strength for these: EWA iShares MSCI Australia Index Fund EWC iShares MSCI Canada Index Fund EWD ...
2
votes
4answers
145 views

Obtaining intra-day values of the EUR-USD exchange

I need for my project the values of the EUR-USD exchange (both intra-day and ticker). I've been playing around with the Yahoo's YQL API and at this moment I can obtain the current value of the ...
6
votes
1answer
122 views

pdf of simple equation, compound Poisson noise

I would like to find the probability density function (at stationarity) of the random variable $X_t$, where: \begin{equation*} dX_t = -aX_t dt + d N_t, \end{equation*} $a$ is a constant and $N_t$ is a ...
2
votes
1answer
175 views

Black Scholes Formula, drift term

In the formula, the stock return is modelled as a brownian motion that is a drift + a stochastic term, ok I get that. But the drift term is then modelled as r - volatility ^ 2 / 2. I am not sure how ...
7
votes
2answers
214 views

What's the point of discounting in risk-neutral pricing?

Let $\phi$ be a self-financing strategy that replicates a time $T$ option payoff $X$ on stock $S$. By definition of a trading strategy, $\phi$ is previsible. Finally, let $V_t$ be the time $t$ value ...
0
votes
1answer
70 views

Expected Utility and $\log$

I've just started reading about expected utility and utility functions and have the following question. $\textbf{Question:}$ An investor has an initial wealth of 100 and a utility function of the ...

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