4
votes
2answers
471 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. ...
20
votes
4answers
2k views

QuantLib in industry

How much is QuantLib used in industry and how much street cred does it have?
14
votes
2answers
1k views

Is there a standard method for getting a continuous time series from futures data?

I would like to be able to analyse futures prices as one continuous time series, so what kinds of methods exist for combining the prices for the various delivery dates into a single time series? I am ...
14
votes
3answers
1k views

Is there a way to estimate (predict) the half life of a quantitative trading system?

Usually even good performing quant trading strategies work for a while and then return start to shrink. I see two reasons for that which would probably give rise to different analysis: The Strategy ...
14
votes
2answers
2k views

What type of analysis is appropriate for assessing the performance time-series forecasts?

When using time-series analysis to forecast some type of value, what types of error analysis are worth considering when trying to determine which models are appropriate. One of the big issues that ...
10
votes
3answers
1k views

Hedging stocks with VIX futures

It seems that VIX futures could be a great hedge for a long-only stock portfolio since they rise when stocks fall. But how many VIX futures should I buy to hedge my portfolio, and which futures ...
8
votes
1answer
1k views

What are the steps to perform properly a risk factor analysis on a portfolio?

I have been asked to perform a factor analysis on a given portfolio, assume it's a Swiss portfolio in CHF. First step, I chose which factors I would like to see in my analysis. The first factors I ...
8
votes
2answers
620 views

Minimizing Correlation

Is there a quantitative method in monitoring trades to reduce the possibility of correlated trades?
7
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 ...
7
votes
2answers
2k views

Which algorithm should I look into to kick off my research in algorithmic trading? [closed]

I have recently undertaken a research into automated algorithmic trading algorithms. The aim of the research is to focus on studying algorithmic trading and trying to improve a basic implementation ...
7
votes
2answers
2k views

SPX options vs VIX futures trading

Forward volatility implied by SPX options, and that of VIX futures get out of line. If there existed VIX SQUARED futures they could easily be replicated (and arbitraged) with a strip of SPX options. ...
6
votes
4answers
243 views

What are the canonical books for statistics applied to finance?

I have some decent knowledge of probability, stochastic processes and option theory, however I do not have a proper background in statistics. Now I am working quite a lot with data, and trying ...
6
votes
1answer
1k views

A generic limit order book: What are the most important queries it should be able to answer?

Assume a class LimitOrderBook which represents a limit order book in a trading system. To be able to represent the limit order book a data handler reads a feed ...
5
votes
3answers
10k views

How to fit ARMA+GARCH Model In R?

I am currently working on ARMA+GARCH model using R. I am looking out for example which explain step by step explanation for fitting this model in R. I have time series which is stationary and I am ...
5
votes
2answers
1k views

Constructing an approximation of the S&P 500 volatility smile with publicly available data

Besides of the VIX there is another vol datum publicly available for the S&P 500: the SKEW. Do you know a procedure with which one can extrapolate other implied vols of the S&P 500 smile with ...
5
votes
7answers
36k views

How to calculate unsystematic risk?

We know that there are 2 types of risk which are systematic and unsystematic risk. Systematic risk can be estimate through the calculation of β in CAPM formula. But how can we estimate the ...
4
votes
2answers
1k views

Mass Market Data Source

My current project requires large amounts of historical and real-time market data (1m or 5m bars for various products, mostly US futures for as far back as available). This data will be analyzed by ...
3
votes
3answers
1k views

How is historical data for forex collected or computed?

I'm looking at four sources of forex data, as compiled in the question, What data sources are available online? And I think I must be misunderstanding something, perhaps something fundamental, but I'm ...
3
votes
4answers
622 views

Do markets typically fall fast, and rise slowly

I'm wondering if there is some measurement or name to this notion, i.e.: Markets typically fall fast, but rise slowly. It seems like this is the case -- get some bad news out of Europe on the debt ...
2
votes
2answers
7k views

What does it mean to be long gamma?

When you are "long gamma", your position will become "longer" as the price of the underlying asset increases and "shorter" as the underlying price decreases. source: ...
13
votes
3answers
10k views

Correlation between prices or returns?

If you are interested in determining whether there is a correlation between the Federal Reserve Balance Sheet and PPI, would you calculate the correlation between values (prices) or period-to-period ...
12
votes
4answers
3k views

What is a “coherent” risk measure?

What is a coherent risk measure, and why do we care? Can you give a simple example of a coherent risk measure as opposed to a non-coherent one, and the problems that a coherent measure addresses in ...
11
votes
3answers
2k views

When does delta hedging result in more risk?

There's a question in an interview book saying "when can hedging an options position make you take on more risk?" The answer provided is that "Hedging can increase your risk if you are forced to both ...
11
votes
1answer
314 views

What approaches are there for stress testing a portfolio?

Wikipedia lists three of them: Extreme event: hypothesize the portfolio's return given the recurrence of a historical event. Current positions and risk exposures are combined with the historical ...
10
votes
4answers
5k views

What is a martingale?

What is a martingale and how it compares with a random walk in the context of the Efficient Market Hypothesis?
8
votes
2answers
3k views

Why do we use GARCH(1,1) to predict volatility?

What makes GARCH(1,1) so prevalent in modeling especially in academia? What does this model has that is significantly better than the others?
8
votes
2answers
2k views

Cluster analysis vs PCA for risk models?

I built risk models using cluster analysis in a previous life. Years ago I learned about principal component analysis and I've often wondered whether that would have been more appropriate. What are ...
7
votes
1answer
960 views

What is exactly Euler's decomposition?

I have often seen the following statement in different paper: As $\sigma$ is homogeneous and of degree 1, we use Euler decomposition and write $\sigma(x)=\sum_{i=1}^n x_i \frac{\partial ...
7
votes
2answers
2k views

What is the mean and the standard deviation for Geometric Ornstein-Uhlenbeck Process?

I am uncertain as to how to calculate the mean and variance of the following Geometric Ornstein-Uhlenbeck process. $$d X(t) = a ( L - X_t ) dt + V X_t dW_t$$ Is anyone able to calculate the mean ...
7
votes
4answers
3k views

Analyzing tick data

What are some of the commonly used techniques to analyze tick data? I am looking at tick data to see how the quotes/ mid-price evolves due to certain events in the market. Since tick data is ...
6
votes
2answers
1k views

Comparing MVO with Resampled Efficient Frontier

My question: How can I compare the Resampled Frontier (REF) to the standard MVO frontier when I have been provided with $\mu$, $\Omega$, and don't have access to true future data to test real out of ...
6
votes
3answers
1k views

Time series of PCA - Sign change in factor loadings

I have a time series of data that is 300 days long. I compute PCA factor loadings on a moving window of 30 days. There are 7 stocks in the universe. Thus factors F1 through F7 are calculated on each ...
6
votes
2answers
982 views

Recommendation for a library to calculate the local volatility surface?

I'd like a library to calculate the options local volatility surface, i.e. the options implied volatility surface for a collection of strikes and their bid/ask prices. Here are the libraries I've ...
5
votes
2answers
2k views

Quantmod: what's the difference between ROC(Cl(SPY)) and ClCl(SPY)

I feel like I'm missing something fundamental here, but I can't shake the feeling that these two series should be equivalent. /edit: there is also dailyReturn(Cl(SPY)). I've seen all 3 of these ...
4
votes
2answers
583 views

SKEW and VIX relations?

My question is about the CBOE published index VIX and SKEW. To start with, I consider working on the variance dynamics. I calibrate the market data (such as VIX and VIX futures) into the Heston ...
3
votes
3answers
3k views

How to detect and adjust for stock splits? [duplicate]

I am using a large daily data panel for over 250 companies and over several years. I am concerned about adjusting for stock splits. Is there any program in SAS to detect stock splits? How do I adjust ...
3
votes
3answers
1k views

How much capital do I need to create a competitive automated trading strategy?

I'm a relatively small investor, and I'm interested in building my own fully-automated quantitative trading strategy. I also read about dark pools, and how difficult it is to get good prices on ...
2
votes
3answers
5k views

Derivation of the tangency (maximum Sharpe Ratio) portfolio in Markowitz Portfolio Theory?

I have seen the following formula for the tangency portfolio in Markowitz portfolio theory but couldn't find a reference for derivation, and failed to derive myself. If expected excess returns of $N$ ...
1
vote
1answer
305 views

Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
13
votes
6answers
2k views

Why are options trades supposed to be delta-neutral?

I'm reading Natenberg's book, and he says that all options trades should be delta neutral. I understand that this prevents small changes in the underlying price from changing the price of the option, ...
12
votes
5answers
1k views

is beta of a portfolio always meaningful?

Consider the following strategies: a stat arb strategy with no overnight exposure, but significant market exposure intraday. a market timing model which is always long or short the market. etc is ...
11
votes
2answers
895 views

Copula models and the distribution of the sum of random variables without Monte Carlo

There is a vast literature on copula modelling. Using copulas I can describe the joint law of two (and more) random variables $X$ and $Y$, i.e. $F_{X,Y}(x,y)$. Very often in risk management (credit ...
8
votes
4answers
775 views

Is this a common variation of sharpe ratio?

As an aside on his answer on another question Freddy said: Sharpe ratio is an often cited metric, though I do not like it too much because you are penalized for out-sized positive returns while ...
8
votes
4answers
1k views

What commercial financial libraries are available to outsource implementation risk?

During our daily jobs as quants, we tend to be willing to develop all the quantitative libraries ourselves. While I know that we need to develop specific algorithms which are the foundations of our ...
8
votes
3answers
2k views

How does volatility affect the price of binary options?

In theory, how should volatility affect the price of a binary option? A typical out the money option has more extrinsic value and therefore volatility plays a much more noticeable factor. Now let's ...
7
votes
3answers
1k views

Volatility arbitrage - how is the profit extracted?

Is there any paper that describes in detail how the profit is extracted in directional volatility bet (vol arb)? I mean in the case that I bet the realized volatility will be lower than currently ...
7
votes
3answers
1k views

Limit order book size

I am trying to write a highly optimised limit order book and I wondered what sort of size I can expect for: Range of limit prices Number of orders at each limit price I am developing custom ...
7
votes
1answer
346 views

How to reduce variance in a Cox-Ingersoll-Ross Monte Carlo simulation?

I am working out a numerical integral for option pricing in which I'm simulating an interest rate process using a Cox-Ingersoll-Ross process. Each step in my Monte Carlo generated path is a ...
7
votes
2answers
3k views

Are there comprehensive analyses of theta decay in weekly options?

Are there comprehensive analyses of how much theta a weekly options loses in a day, per day? I know what the shape of theta decay looks like, in theory, where the decay towards zero happens more ...
6
votes
4answers
917 views

Threshold calculation for buying a mean-reverting asset

I am trying to figure-out an optimal policy for buying a unit when its price follows a mean-reverting price process (Ornstein–Uhlenbeck), when I have a finite time deadline for buying the unit. I ...

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