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
249 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
376 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
77 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
282 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
570 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
94 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
390 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
216 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
43 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
763 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
180 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 ...
1
vote
1answer
158 views

Markowitz portfolio optimization question

I am studying the Markowitz portfolio optimization theory, and I just wanted to ask if I understood this correctly. For a stock portfolio we distinguish two kinds of risks: an unsystematic risk, which ...
4
votes
1answer
135 views

Need for Binomial Representation Theorem

In some texts (e.g. Baxter & Rennie, Shreve I) the binomial model is first constructed using the usual backward induction argument, and it is concluded that by no-arbitrage the time $t$ value of a ...
0
votes
1answer
60 views

Portfolio volatility

Problem True or fale? The stock of a firm has an expected return of 10%, and a volatility of 10%. The weight of the stock in a portfolio is 5%, and the correlation of the stock’s return with the ...
1
vote
1answer
110 views

Option Pricing under Jump Diffusion Models

I was wondering what the overall approach/intuition behind how to price options under Jump Diffusion Models. My understanding is under Diffusion models such as Geometric Brownian Motion (Black ...
1
vote
2answers
59 views

Is the Binomial Tree Model not self-financing?

Consider a 2-period binomial tree where the derivative price is $f$ and the stock price is $S$. Also, let the bond be deterministic with continuous growth rate $r$ and initial value $B_0$. binomial ...
2
votes
1answer
163 views

Derivation of HJB equation

I am trying to derive the HJB equation in a stochastic setting. Let me exemplify my problem with the simplest case where there is no control, just one state variable. Assume the payoff is given by $$ ...
2
votes
1answer
269 views

How to create a basket of currency pairs with the lowest correlation in R?

My strategy is designed to buy and sell all assets of a universe and rebalance periodically. It goes either long or short. To limit risk exposure to a single currency I would like the assets in the ...
-3
votes
1answer
57 views

Zero coupon bonds [closed]

Assume the zero-coupon bonds from 1 year to 4 years are all available, and the current 1-year, 2-year, 3-year and 4-year spot rates are 4%, 5%, 6% and 7% accordingly. Interest rates are annually ...
4
votes
2answers
350 views

Arbitrage question

Consider a hypothetical Payment in Kind (PIK) bond of XYZ Corporation. The bond has 2 years to maturity, a face value of $1000, and has an annual coupon rate of 10%. Coupons are paid annually. XYZ ...
2
votes
1answer
150 views

How to identify the orders p and q for ARIMA model using least squares method?

I would like to identify the orders p and q for ARIMA model using least squares method in Matlab. I have got also two data files (one with noise and one without) Previously I identified p and q for ...
1
vote
1answer
42 views

How to effectively hedge a Fixed-Term deal in a foreign currency?

Assume my firm is based in USD and agrees with some counterparty to buy, at time $T$, some quantity $Q$ of asset $A$ for a fixed price $K$. Assume also that $A$ prices and $K$ are denominated in EUR. ...
0
votes
1answer
99 views

A Difference between Local Vol and Stochastic Vol Models

For the purpose of this question a local vol model is a 1d SDE which specifies the price process and we have a contingent claim that depends on those prices (in general, at multiple times). e.g. ...
4
votes
2answers
112 views

simple, intuitive barrier option derivation

Is there a simple integral that gives barrier option prices without having to deal with messy, hard PDEs and change of variables I understand there is a reflection principle such that the simulation ...
4
votes
3answers
366 views

Negative high frequency intraday volatility - Zhou estimator

To estimate high frequency tick data stock intraday volatility, I have read Robert Almgren's notes7.pdf http://www.cims.nyu.edu/~almgren/timeseries/notes7.pdf where he talks about the bias free ...
6
votes
4answers
367 views

Calculating VaR with Monte Carlo simulation

I would like some help here :) I have a problem calculating VaR with the Monte Carlo Simulation. I have followed then next steps, is this a right way to calculate VaR or I need something more? ...
1
vote
1answer
127 views

Why we consider second derivative w.rt price but only first derivative w.r.t time and volatility

What is the reason (better if it is intuitive, and not too math heavy), that when we talk of Greeks, we consider second derivative with respect to price (gamma), but only first derivative with respect ...
3
votes
1answer
121 views

Why must a replicating portfolio be self-financing?

If I have a trading strategy such that at each time $t$ I own $\Delta_t$ units of stock $S_t$ and $\psi_t$ units of bond $B_t$, it is a replicating strategy for some claim with time $T \geq t$ payoff ...
2
votes
0answers
48 views

Value-at-Risk Calculation with respect to the Capital Requirements

I want to calculate the Value-at-Risk at date $t$ in such a way that I minimize the capital requirements given as \begin{align} \text{CR}_{\,t+1\,:\,t+250} = \sum_{h=0}^{249}\max\left( ...

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