# All Questions

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### 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, ...
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### 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 ...
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### 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 ...
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### 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 ...
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### What is a martingale?

What is a martingale and how it compares with a random walk in the context of the Efficient Market Hypothesis?
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### 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?
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### 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 ...
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### Quantitative before/after or financial engineering studies of a bid or ask tax?

Has anyone in the quantitative finance or financial engineering community studied the effects of a bid or ask tax with actual or simulated data? If so, what were the quantitative results or ...