2
votes
1answer
106 views

if market is always assumed right, what happened when LIBOR was manupulated?

Recently Monetary Authority of Singapore (MAS) raps banks in rate-rigging. This is nothing new, LIBOR was also manupulated before, by some "major" banks. however, before the censorship, did any ...
2
votes
0answers
147 views

Dual curves and short rate calibration

When I calibrate a short rate model to market swaption vols, what curve am I getting when I plug in the calibrated parameters into the analytical formulae (assuming they exist for the model I'm ...
1
vote
0answers
175 views

How to statistically compare the pricing errors of various option pricing models?

I have three different option pricing models, for which I computed the in-sample and out-of-sample pricing errors. Now I want to test the pricing performance of these three option pricing models ...
-4
votes
1answer
54 views

Does YTM represent interest? [closed]

Does a bond's Yield to Maturity represent the amount of interest one gets at maturity even though it's expressed as a percentage? I read that it is a rate of return on a bond at maturity, but what is ...
6
votes
2answers
2k views

Difference between google finance and yahoo finance?

I am wondering about the huge differences of the data provider google finance and yahoo finance. I am interested in the monthly data from adidas listed on xetra. In google: ETR:ADS and in yahoo ...
8
votes
3answers
1k views

How to estimate real-world probabilities

In the world of finance, Risk-neutral pricing allow us to estimate the fair value of derivatives using the risk free rate as the expected return of the underlyings. However, the behavior of ...
9
votes
1answer
649 views

Applicability of PCA to get historical volatilities to calibrate interest rates trees

My question in short is as follows: can I take main principal component of historical covariance matrix and use it as historical volatilities when fitting a binomial tree? Here's more detailed ...
1
vote
0answers
929 views

Models for simulating FX movements

My goal is to develop a model to simulate long term FX movements. (I am not sure if long term makes any difference, but if it does I am more interested in long term fx movements) These Monte Carlo ...
9
votes
1answer
366 views

Is creating constrained random portfolios a hard problem?

Creating random portfolios with weights $x_i$ can be thought of as sampling from the surface of a simplex given by $$Ex = f$$ and $$Ax \le b$$ Where $E$ and $A$ are constraint matrices for equality ...
3
votes
5answers
380 views

Is there a name for, or any research on, a system where you try to predict future price by finding a similar price history in the past?

Allow me to explain. You look back from some period to the present. Say a week ago to now, using a per-minute view. You then crawl through your database of past price data, and you try to find a ...
2
votes
2answers
118 views

Approximating a function with trignometric polynomials

Let’s say I have a function, which is a time series of data points, I am trying to find a polynomial of fixed sine's and cosines that bests approximate the data points. I know Chebyshev Approximation ...
0
votes
0answers
68 views

% Return on backtest with variable positions and notional amounts

I have a 14 year backtest for a systematic strategy that uses a static notional per each position. On any given day I could have multiple positions long and short and notional long and short. How do ...
2
votes
0answers
830 views

How to calculate the conditional variance of a time series?

I am reading a paper where the term conditional variance is mentioned, but I am not really sure what is meant by this and how this can be calculated: Fig. 2 shows the conditional variances of the ...
7
votes
6answers
3k views

Why Drifts are not in the Black Scholes Formula

This question has puzzled me for a while. We all know geometric brownian motions have drifts $\mu$: $dS / S = \mu dt + \sigma dW$ and different stocks have different drifts of $\mu$. Why would ...
3
votes
2answers
321 views

Heston - How important are the initial guess in calibration and if it is very important, what would be a good way to get initial guess?

So I have been trying to implement a simple Heston calibration using crude MC with 10k scenarios and 1000 time steps and the best I could get is 3x of the observed implied volatility. I suspect it ...
1
vote
1answer
332 views

Heston MC Simulations - Speed up in Matlab

At the moment I am running a Quad Core Xeon PC with 12GB of RAM doing crude MC with 10k scenarios and 1000 time steps. And using fminsearch for calibration, and it takes about half an hour to an hour ...
3
votes
1answer
135 views

At what volume would you move the price at the opening auction?

At many exchanges the opening price is set using an auction which takes place pre-opening (see here for example). During the auction you are allowed to place orders according to certain rules (you ...
5
votes
1answer
554 views

Multi Fractals Models

From a quant point of view, how would you explain Multi Fractals Models in few words ? I have the level to take these courses, but won't be able to do it next year, so I want to know what I am ...
1
vote
1answer
332 views

why banks shall keep short term gap position low?

I'm reading "Insights for Bank Directors" (http://www.stlouisfed.org/col/director/reference_view.htm), a good introduction to commercial banks, based on a virtual bank "Insight". It talks about Gap ...
7
votes
2answers
3k views

Why using 3 months forward to hedge fx risk on a fund of funds portfolio?

In my previous job, a fund of funds, they used 3 months forward FX contracts (renewed every 3 months) to protect their portfolio against currency risk. If I do understand why forwards are useful for ...
4
votes
4answers
2k views

How to calculate the implied volatility using the binomial options pricing model

I want to calculate IV for american options with dividends. So far I have found algorithms to calculate the option price given a volatility. Please can you point me to paper or implementation (R, ...
4
votes
2answers
464 views

Malliavin Calculus

From a quant point of view, how would you explain Malliavin calculus in few words ? I have the level to take these courses, but won't be able to do it next year, so I want to know what I am missing. ...
4
votes
3answers
316 views

Are minimum-risk and minimum-variance portfolios equivalent?

When reading a paper by DeMiguel and Nogales (2007; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=911596), I came across the following formulation: Comparing the proposed minimum-risk ...
3
votes
0answers
159 views

Black-Scholes PDE to heat equation, nonconstant coefficients

Can someone provide me with details or a reference on how to transform the Black-Scholes PDE with nonconstant coefficients (i.e. $r=r\left(S,t\right)$, $\sigma=\sigma\left(S,t\right)$) to the heat ...
1
vote
1answer
261 views

Volatility Estimation

Let say I ran two strategies and got its weights at each rebalance and equity curves. I would like to combine these systems to get the performance if I were to trade them concurrently from a portfolio ...
0
votes
1answer
169 views

Required Rate of Return vs Expected Return

I faced a problem that gives the following information: market risk premium, and risk free rate is given You currently have a portfolio of amount of x, beta b1. Now there is a new investment ...
8
votes
2answers
540 views

Is the price of European put option monotone in volatility if we replace BM in Black-Scholes with a general Levy process?

Under the Black-Scholes model, we have the European put option is $\mathbb{E} [e^{-rt}(K-S_t)]$, where we take $\log(S_t)=X_t$ and $dX_t= \sigma dW_t - \dfrac{1}{2}\sigma^2 dt + rdt$. Here the option ...
3
votes
1answer
311 views

Volatility Return Distribution/Garch Modeling

For simplicity sake, if stock returns are normally distrusted, would that imply that second moment, variance/volatility, is chi-squared distrusted? If so wouldn't that imply the statistics(employed to ...
0
votes
1answer
232 views

Initial margin requirement as percentage, not dollar value

Problem from Finan, FM/2 On 12-30-1998, you decided to bet on the January effect. ON that day, you bought 400 shares of Microsoft on margin at the price of 139 per share. The initial margin ...
0
votes
2answers
250 views

Change option B&S pricing

Consider a market composed by two stocks whose prices $X$ and $Y$ are given by B&S diffusion $$dX_t= \mu X_t dt+ \sigma X_tdW_t$$ $$dY_t= \mu Y_t dt+ \sigma Y_tdB_t$$ Supposing the market is ...
2
votes
1answer
522 views

Continuous returns for negative roll-adjusted futures data

I've generated roll adjusted notional futures data by adding a roll adjustment to the settlement price then multiplying by contract multiplier through time. For example, for crude oil CL, on 15 March ...
2
votes
1answer
71 views

Creditworthiness indicator for copula one-factor model

In this paper in equation 15 on page 261 dealing with one factor copula model, one is using creditworthiness indicator as one of a variables. It is defined as \begin{equation} Y_c = \sqrt{\rho_c} Z ...
4
votes
1answer
177 views

Futures Contract Fair Values Accuracy

I have recently been tasked to work on fair value derivation for futures on equity indices (non-US). I know that the FVD function in Bloomberg can have a huge discrepancy from markets: where cheap is ...
2
votes
2answers
224 views

Block Bootstrapping Relative Returns

I want to run a block bootstrap on the relative returns, but I'm not sure if subtracting the mean is important. A bootstrap sequence is a synthetic sequence generated using the original sequence. If ...
0
votes
1answer
164 views

Floor and Cap problem

So I have a problem from Marcel Finan's "A Basic Course in the Theory of Interest and Derivative Markets." We are going over floors and caps, covered puts and covered calls. Consider the following ...
4
votes
4answers
815 views

Usage of Bollinger bands

I looked through several sources on Bollinger bands and I do not see clear recipes of their usage. Wikipedia says "The use of Bollinger Bands varies widely among traders. " QSE discussion seems also ...
2
votes
0answers
117 views

Quantitative risk management strategy for a large participant in an illiquid market

Are there any practical quantitative risk management strategies for a large participant in an illiquid market with a few dominant players? By a large partcipant I mean someone who has significant ...
3
votes
3answers
292 views

Risk prediction based on financial statements

I have a profit loss statement and balance sheet with the following fields: Example P&L Turnover420,363 - Cost of sales £118,730 £140,169 - Gross Profit ...
2
votes
0answers
71 views

FRA-Strategy: Make 3-month and 1-year Excess returns comparable

I am trying to analyze an investment strategy that tries to exploit the empirical difference between forward interest rates and realized spot rates. I am using FRAs to capture the difference. I am ...
7
votes
2answers
304 views

Why does Black-Scholes equation hold on continuation region of American Option?

Explanation for Put Option: $ \frac{\partial V}{\partial t}+ \mathcal{L}_{BS} (V) = 0 $, where $\mathcal{L}_{BS} (V) = \frac{1}{2} \sigma^2 S^2 \frac{\partial^2 V}{\partial S^2} + (r-q) S ...
1
vote
3answers
655 views

Data sources for financials of global equities

I looked through the master list of data sources but could not find any data sources for financial data of global equities. An example would be the balance sheet of, say, ...
2
votes
1answer
463 views

Aprox intraday implied volatility using intraday option prices and EOD greeks

I have two options datasets: EOD IV and Greeks Tick option and underlying prices I'm looking to calculate IV for each tick. Is there a way to approximate the ticks' IV using last EOD Greeks and ...
2
votes
0answers
190 views

Any one know how to implement the Heston and Rouwenhorst country-sector effects regression in R?

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
1
vote
0answers
33 views

How to set up Heston and Rouwenhorst regression? [duplicate]

Heston and Rouwenhorst (1994) devised an empirical estimation strategy to decompose stock returns into three components: a pure industry effect, a pure country effect, and a world-factor return. ...
3
votes
0answers
74 views

Standard Assumption Terminology

Regulators are starting to analyse (or at least they are talking about it) model assumptions. We all know that too often our assumptions are just in the model documentation. Furthermore, we have no ...
4
votes
2answers
299 views

which product supports Basel III LCR (liquidity coverage ratio) reporting?

After Jan 2013 change, now the main reporting changes requested from Basel III is LCR, Liquidity Coverage Ratio. Moody's has a product named RiskAuthority (previously Fermat CAD) that is going to ...
1
vote
1answer
410 views

Portfolio software that shows 'total return' for each investment

I'm a high school technology teacher and sponsor for the Charity Student Investment Project. Currently our students track our investment portfolio via a google spreadsheet ...
2
votes
2answers
622 views

Dynamic hedging strategy example

I am faced with the following problem. Let the standard Brownian motion $W_t$ be the price process of a traded asset in an economy with zero interest rate. Define $$A_T=\frac{1}{T}\int_0^T W_t^2 dt$$ ...
3
votes
1answer
634 views

Monte Carlo simulating Cox-Ingersoll-Ross process

The CIR process is given by the SDE $$ \mathrm dr_t = \theta(\mu-r_t)\mathrm dt + \sigma\sqrt{r_t}\mathrm dW_t $$ where $W_t$ is a Brownian motion. I am interested in finite-difference schemes of ...
1
vote
1answer
307 views

Blackbox Optimization + Bootstrapping = Parameter Selection?

Most automated trading systems have a number of embedded parameters such as the lookback periods, entry and exit thresholds, etc. This is like the moving average crossover system or any of the systems ...

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