# All Questions

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### The portfolio whose return is the stochastic discount factor

I am trying to construct a portfolio whose return is $a + bm_{t+1}$ where $a$ and $b$ are some constants for a certain investor. $m_{t+1}$ is the stochastic discount factor at time $t+1$. I am ...
79 views

### Smoothing factor of Exponential Moving Average

I'm trying to implement an Exponential Moving Average indicator, but I'm sort of stuck on the smoothing factor. What I've come up with: $$\frac{1}{N}\sum\limits_{k=0}^N \alpha^{k} P_k$$ Where N is ...
137 views

### Shannon's entropy for financial times-series (return)

I'm looking at Shannon entropy, and generaly at ways to tell noise from signal when observing intraday returns (at the minute level for now). In python, e.g. I've implemented the fomula (sum of ...
56 views

A lower coupon bond exhibits higher duration, which means higher price volatility with changing YTM. A lower coupon bond also exhibits higher convexity. However, with higher convexity, bond prices ...
37 views

### Testing a Monte Carlo simulation independently

I'm building a Monte Carlo option pricing model in Python/SciPy. I want to test the results produced by the Python code by building the model independently in Excel and then comparing the results. Off ...
124 views

### 2-step estimation of DCC GARCH model in Python

Embedded in this thread are multiple questions. I'm currently im the process of implementing a DCC GARCH forecast model on quantopian (a python-powered trading platform). The two step consists of ...
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### Listed companies on NASDAQ

Where can I find a list of listed companies on NASDAQ from 2000 to 2014?
154 views

### Derivation of the formulas for the values of European asset-or-nothing and cash-or-nothing options

The asset-or-nothing European option pays at t = T the value of the stock when at time T that value exceeds or is equal to the exercise price E, and nothing if the value of the stock is below E. So, ...
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### Integrated Volatility in Diffusion Processes vs Volatility of Discrete Processes

In a Diffusion Process of the form $$dX_t = \mu(X_t)dt + \sigma(X_t)dW_t$$ the Integrated Volatility is defined as $$IV_t = \int_t^{t+1} \sigma^2(X_s)ds.$$ In this case, the Integrated Volatilty ...
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### “Spot rate is not observable” meaning

In Bruno Remillard's text, "Statistical Methods for Financial Engineering," he states the following on p 148 after giving the general form of a bond price $P(t,T)$ under Vasicek's model: Note that ...
57 views

### How to evaluate minimum-variance strategies against perfect information mvp

The minimum variance portfolio should minimize the standard deviation (variance) of the portfolio at time $t+1$. The covariance matrix $\Sigma_{t+1}$ needs to be estimated in order to form the mvp. ...
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### If floating leg in an arrears swap is paid on the date then valuing them is like predicting future

From what I am reading arrears swap are paid on the same day(actually, +2 business days for JPY and USD) as the reset date. To me then, a week before the reset date the floating rate is not known. ...
56 views

### Difference between DV01 and IR DV01

What is the difference between DV01 and IR DV01? As far as I can see DV01 is at point on the yield curve and IR DV01 represents a parallel shift of the entire yield curve? My understanding is still ...
78 views

### Relationship between risk-neutral probability and subjective probability

I recently came across a Paper by a paper of Rubinstein and Jackwerth (1997): http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.441.5214&rep=rep1&type=pdf where they assume that you ...
26 views

### Factors to Include in a Model to Predict Gross Profitability Persistence

I am trying to build a logistic model that predicts gross profitability persistence. Specifically at the start of every July, I assign stocks to one of five gross profitability groups (5 being the ...
133 views

### How to learn QuantLib-python at first?

In my project, I have to get the delta of up and out call option (with vol surface). I found out that QuantLib might help me on that. Since my main language is python and I don't know well about C++, ...
2k 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 ...
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### How difficult/easy it is to migrate from CME FAST to CME MDP3.0?

Has anyone gone through this migration? Just wanted to have an idea of the amount of effort required.
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### Least-Square Monte Carlo in multiple variable

The paper by Longstaff-Schwatz on Least Square Monte Carlo offers very little proof. The only proof they have given assumed the option can only be exercised at two different time point and the price ...
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### High Beta 'Filter' for Minimum Variance Portfolios (MVP's) - Lower Risk/Improve Return?

I am busy conducting research in South Africa on the JSE. I am investigating several risk based portfolios with an emphasis on MVP/min vol. My process is as follows: Although the JSE has around 400 ...
67 views

### Market returns below risk free rate

Let's say I'm using CAPM to estimate the cost of equity, so I need expected market returns for the calculations. The standard approach is simply to compute arithmetic mean of an index (or rather its ...
80 views

### Does the fact that volatility is not constant imply existence of skew?

I had a question regarding the existence of the volatility skew. I've tried researching it a fair bit and I come across a few different explanations: 1. Market participants like buying downside puts ...
95 views

### What should be the sign of greek letter $\rho$?

I'm reading the book Risk Management and Shareholders Value in Banking by Resti & Sironi. I quote a paragraph from the book (Chapter 5, appendix): The derivative of an option’s value with ...
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### Construction of bond portfolio represented by a CDS-Index

Markit publishes investable basket CDS indices. These are indices intended to track the credit risk of a basket of issuers (e.g. in the case of iTraxx Europe Series 24 these are 125 names) in an ...
58 views

### Calculating expected shortfall

I'm trying to calculate the expected shortfall for the below scenario. I don't understand why the 1.04% probability of 0 bonds defaulting is used as a weight when calculating ES, since the binomial ...
52 views

### European option on a dividend paying stock, limits to arbitrage?

What is the price C of a European call option on a dividend paying stock? I believe it is: C = U. N(d1) - exp(-rt).K.N(d2) d1 = [ ln(U/K) + (r + v^2/2).t ]/[ v.sqrt(t) ] d2 = d1 - v.sqrt(t) U ...
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### Hwo to create a benchmark for a portfolio?

How does one create a benchmark for a portfolio? I realize if I were using strategic asset allocation, I could just look at the already existing benchmarks associated with the various asset classes ...
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### Why is convexity adjustment applied to swap price for a nonstandard swap, in simple terms?

Martinelli et al. show that when the 3-month Libor is replaced by the 3-month Libor forward rates (which are obtained from the spot zero-coupon yield) then the swap price depends only on zero-coupon ...
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### What is mathematically rigorous way to estimate floating swap cash flow in the future?

In vanilla swap, the FL payments is fixed on one date and paid on the next reset date. So the next payment is known. However, the payment after that is not known. What would be the best estimate of ...
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### Binary option greeks formula for american style exercise

I got Binary option greeks formula in many below links but if i am not wrong indirectly they all are related to European exercise style. Link1: ...
39 views

### What is the tail index for NIG and/or VG?

...as a function of NIG (Normal Inverse Gaussian) or VG (Variance Gamma) parameters, obviously. I've read that the NIG $\alpha$ is related to the $\alpha$-stable tail parameter, which conversely maps ...
608 views

### what's the difference between Peak-Load pricing and price discrimination?

i just don't get it. Peak-load pricing wiki page gives example: in public goods such as public urban transportation, where day demand (peak period) is usually much higher than night demand ...
39 views

### Turnbull & Wakeman Asian - not Edgeworth?

My understanding is that Turnbull & Wakeman derived an approximation formula for continous arithmetic Asian option using Edgeworth series by matching the first two moments. However, in the book ...
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### UK company data from Datastream: FBRIT+DEAKUK versus WSCOPEUK?

I'm working on a paper investigates the existence of a profitability premium in the UK starting in 1970. (Novy-Marx, 2013) The core methodology is creating Fama and French portfolios, testing the ...
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### When would dedicated portfolios do better than 'immunized' portfolios?

We just learned about cash-matching through dedicated portfolios (using risk free bonds) in my class that concerned mathematical programming. However, in an aside one of the notes said: It should be ...
362 views

### Key Rate Duration for MBSs greater than Key Rate Tenor

Key Rate Durations (KRD) are essentially some fixed income instrument's price sensitivity to a non-parallel shift in interest rates (i.e., a shift at the "Key" Rate). For example, a 10-year bond's ...
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### How to record tick data from Google/Yahoo Finance data streams?

Is there any way to record or piggyback with an app, code or excel Google finances' or Yahoo finance's data stream? Ideally, I need tick by tick data, as in every price change of the day. All the ...
77 views

### Model Price vs Market Price in terms of Fair Price (Options)

Before I start: Ok, this is something I investigated for a fair amount of time and my question is semi-academic. To simplify, I will introduce the short bit (TLDR) of my question and then lay out ...
239 views

### Stochastic Volatility CIR estimation

Would anyone have a code (pref. Matlab or R) for any type of estimation (QML, GMM) not using option prices of a stochastic volatility model driven by a CIR process described below? ...
41 views

### Delta Volatility Surface Usage to value the option

I always find myself in the unknown charted territory when it comes to non-Linear Instruments. I come across the scenario, How to value the option using Delta Vol surface? Example I have CME traded ...
46 views

### Where to find pricing formulas for affine stochastic volatility jump-diffusion models?

Does anyone know a reference where I can find the pricing formulas for vanilla calls in the affine stochastic volatility jump diffusion class of models such as SVJ and SVJJ? I am looking for ...
62 views

### Monte Carlo Convergence

Let $\{X_i\}$ be an i.i.d. sample of $X$ with $E(X) = \mu$ and $Var(X) = \sigma^2$. We know a MC estimate converges to the true value almost surely by the SLLN. That is,  \bar{X}_n \to \mu, ...
173 views

### How to trade a Ratio?

I came across a ratio plotting of Corn And Soybeans contracts, notice it's in a historical low, an intuitive question came to my mind, how should I trade this ratio (or relationship)? It's unlike flat ...
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### Order ID or Broker information from TAQ or Limit Order book?

Is it possible to see if a big order was executed in smaller chunks, and at what prices and times?
22 views

### SVI calibration, why fit to option prices and not implied volatilities

Bear with me. Related (very good) question: How to calibrate a volatility surface using SVI From this paper http://arxiv.org/pdf/1204.0646.pdf, page 21. Why does the recipe suggest fitting to option ...
105 views

### what data to use to compare the interest rate among different currencies?

Very new to fixed income signals. I am a little confused about which data to use to compare interest rate among different currencies. For example, I am interested in compare interest rate in the ...