0
votes
0answers
13 views

Is my demand prediction too low?

Hi i have a problem right now at work. For certian business segments,some sales target are establish each year. This targets are establish based on the managers feelings. Its like this: Manager: "so ...
1
vote
2answers
59 views

Correlation: Use Price or Return? Return doesn't make sense [closed]

I am trying to find the correlation between the returns of two indices over a long period of time (10 years+) . Should I be using the index daily price level or the index daily total return? Most ...
1
vote
0answers
23 views

Fama-French Factors for ETFs and MFs

Is there a public source or a paid service that provides FF3 (or FF4 = "Carhart") factor loadings for US traded ETFs and Mutual Funds? Something that is regularly updated and that provides comparable ...
0
votes
0answers
12 views

Replicant portfolio with commissions (Jarrow Rudd)

I have created a Jarrow Rudd three for a call option that I know how to replicate with a portfolio. A replicating portfolio of a option works this way: At time 0 we form a replicating portfolio ...
2
votes
2answers
145 views

Stochastic volatility

Suppose we have : $\frac{dS_{t}}{S_{t}}= \sigma dW_{t}$ with $\sigma_{t}$ a stochastic volatility process. How to compute $\mathbb{E}^{Q}[(S_{T}-K)+]$ ? Is there a BS alike formula : ...
0
votes
0answers
38 views

Cubic spline interpolation in excel (yield curve from forward curve)

I have an excel spreadsheet that I'm trying to make sense of that uses the data from a forward curve to project a yield curve through the use of cubic spline interpolation. The sheet has 6 different ...
0
votes
0answers
23 views

How to impose restriction on cointegrating vector in R, reproducible example

The code given below estimates a VEC model with 2 cointegrating vectors. It is a reproducible code, so just copy and paste into your R console (or script editor). ...
0
votes
0answers
27 views

Bootstrap bond-implied default probabilities in MatLab?

Has anyone used MatLab to extract default probabilities from bond/fixed income prices? MatLab has some built in functionality to do this analysis with CDS ("cdsbootstrap"), but not bonds. Certainly ...
0
votes
1answer
79 views

How Much cost to setup trading platform such as Flextrade, portware, Sungaurd or Bloomberg for hedge fund?

Basically if someone want to setup a hedge fund how much cost to buy trading software such as Flextrade, portware, Sungaurd or Bloomberg for hedge fund?
0
votes
1answer
26 views

Choice between 2 investments that cost the same but offer different interest and face value [closed]

Assume, you have a choice between two investments that both cost \$1000 each, however investment A pays \$20 a year and \$950 at the end of year 5 but investment B pays \$10 a year and \$1000 at the ...
0
votes
1answer
74 views

Fama-French three-factor model vs four-factor (Carhart) and five-factor model

I'm performing a study where I compare the Fama-French three factor model to the CAPM on the Swedish industrials industry. I do this to compare which of the models is the best performer, but also if ...
1
vote
1answer
63 views

HJM framework problem - showing that HJM drift condition implies that $b(z)=b+βz$ and $(ρ)^2=α$

Hi I am looking for some general clarification to Heath–Jarrow–Morton framework. I am analyzing a problem where the forward rate is modeled as $$ f(t,T)=e^{\beta(T-t)} Z_t+h(T-t) \tag{1}$$ for some ...
4
votes
1answer
102 views

Use NIG distribution to model stock path

I would like to use Monte Carlo simulation to price some options. First I use standard approach where stock price is discribed by the following process: $$S_T = S_0\exp \left[(r - 0.5\sigma^2)T + ...
7
votes
1answer
48 views

Why Fama and French sort on June's size data and not of some other period?

In Fama and French (1993), p. 8, I read "In June of each year $t$ from 1963 to 1991, all NYSE stocks on CRSP are ranked on size (price times shares)." Later on the same page, they write ...
1
vote
3answers
108 views

Cross Currency Swap

1) What is the difference between Cross Currency Swap and Cross Currency Basis Swap? Appreciate if this can be explained in layman's terms. 2) Could you advise me which swap rate to be used for the ...
0
votes
2answers
57 views

Pricing a physical commodity forward contract

I have just started reading Options Volatility and Pricing 2nd edition and I'm a little confused on forward contract pricing. The book states ...
0
votes
1answer
17 views

Getting a better return on multiple combined stocks, than individual stocks gains. Kind of like a sports accumulator

Ive identified 4 stocks that i think will gain 10 - 20 % when their next quarterly report is released. If you've only got access to a small amount of capital say USD10,000 the by buying USD2,500 ...
0
votes
2answers
31 views

Stochastic Simulation vs percentile-to-percentile map

I was wondering why someone would go to the trouble to generate random variables in scenarios that are not path dependent. Let me provide a simple (although somewhat contrived) example. Lets say that ...
1
vote
0answers
24 views

Machine Learning Munging - order of transforms? + adding in econometric tests?

I have a list of possible transforms, and I've read some confusing/contradictory stuff about the preferred order in which these operations are performed. Maybe 1) the order is sometimes amorphous, ...
3
votes
1answer
54 views

CIR model - nth moment generation $E^*[r_T^n]$

I am analyzing the nth moment generation process for $r_t$ with dynamics defined by CIR model $r_t$ has following dynamics $$dr_t=a(b-r_t)dt+\sigma \sqrt{r_t} dW_t^* \quad \quad (1)$$ for some ...
0
votes
1answer
26 views

Stochastic volatility and forward start contracts

Why is it more accurate to use stochastic volatility when pricing let's say a forward start option (ie an option priced today but striked in a future date) ?
2
votes
1answer
67 views

Real time stationarity test

I have a trading system based on Machine Learning which is trading 8 symbols intraday. From the results I found out that some weeks of trading are successful for some symbols, then it usually switches ...
2
votes
1answer
32 views

If VIX measures SPX IV 30-days in future, how to modify formula to calc IV 60-days in future?

So I've gone over the CBOE VIX white paper a few times and understand it well enough to have written (Ruby) code to produce the correct VIX. I have the older version of the paper where it only used ...
0
votes
2answers
51 views

What is the data quality of ask (offer) versus bid quotes in FX markets?

I'm working with high frequency FX data. Because the FX market is a decentralized market, different traders often have slightly different prices at the same moment. I can see how this would ...
1
vote
0answers
30 views

Estimation of Affine Term Structure Model

In this paper the estimation of Affine Term Structure models via ML is discussed. In the Affine $N$-factors model the price of the bond is $$ P(X_t,t,T;\theta) = ...
0
votes
2answers
58 views

CAPM, DCF, and Jensen's inequality

One way to value a cashflow is to first calculate the expected return from CAPM, and then use the expected return to discount the future cashflows. The problem here is that the expected return from ...
3
votes
2answers
96 views

CIR model problem - deriving PDE, Feynman-Kac

I am reviewing a CIR model problem, where $r_t$ has following dynamics $$dr_t=a(b-r_t)dt+\sigma \sqrt{r_t} dW_t^* \quad \quad (1)$$ for some constants $ab>\frac{\sigma^2}{2} \quad$ Letting T ...
0
votes
1answer
52 views

LIBOR rates from Vasicek/Hull-White model?

I am somehow puzzled by the following problem: LIBOR rates are forward rates for an interbank loan for 1M or 3M (let's limit the range of possibilities to these two cases). Assuming that I have ...
4
votes
2answers
83 views

Convergence of the distribution of 0.05 quantiles through Monte-Carlo simulation

I am trying to get admitted to a masters in quantitative finance (I come from a computer science background), so next week I will have 3h to solve an exam in statistical computing using my favourite ...
0
votes
1answer
50 views

LIBOR 3M and 1M from Vasicek model

I would like to discuss my approach toward modelling of interest rates with respect to its downsides and advantages. My problem is to forecast daily LIBOR 3M and LIBOR 1M over a particular time ...
3
votes
3answers
100 views

existence of implied volatility

I read a book where it was written : 1/ "implied volatility is the market's consensus on the volatility of the asset between now and the maturity of the option". -> Could someone explain me this ...
0
votes
2answers
92 views

Solving for r in the Black Scholes equation

Could you please correct which parts of my reasoning are wrong? Let's suppose that I know for sure that my estimate for a stock volatility is right (I have a crystal ball) and that it will be for ...
1
vote
1answer
55 views

Expected Value of Products of Processes

Suppose I have two processes. $A_t = A_0 \exp((a-\frac{1}{2}\sigma_A^2)t+\sigma_A W_t^A$ $B_t = B_0 \exp((b-\frac{1}{2}\sigma_B^2)t+\sigma_B W_t^B$ I would like to calculate $E[A_s B_t]$ where s ...
1
vote
1answer
33 views

Calculation loan's margin from bank perspective

I was wondering how bank calculates in practice the amount of money it earns after granting a credit (I hope margin is the proper word). Supposing, that the client took 3-year 10000 euros loan (36 ...
1
vote
1answer
69 views

FX Modeling references

I would like to have some sugestions of reference books on FX modeling with strong mathematical approach, preferably combined with market pratictioner quant perspective. All sugesting are welcome! ...
1
vote
1answer
72 views

How to statistically prove that an automated trading strategy outperforms the market? [closed]

For a university project, I have been working on a rather complex automated trading strategy, that levers machine learning techniques. I backtested the algorithm, as a result I have daily return data ...
1
vote
1answer
189 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
0
votes
0answers
28 views

American call early exercise, considering a portfolio

Im aware there are lots of questions about this, but I am interested in a particular method of showing why an american call (with no dividends) should not exercised early. Here is the text I'm ...
0
votes
1answer
55 views

Ho-Lee model - A and B derivation for $P(t,T)=e^{-A(t,T)-B(t,T)r_t}$

I am analyzing the transition of the bond prices in the affine models in the form of $P(t,T)=e^{-A(t,T)-B(t,T)r_t}$ using the property that the diffusion and the drift of an affine model can be ...
0
votes
1answer
38 views

When is option value inversely related to expected volatility?

It is common knowledge that the greater the expected value, the higher the option value. However, there are surely exceptions, as written by Paul Wilmott's FAQs in Quantitative Finance Q: If you ...
-1
votes
1answer
42 views

Determining confidence level of directional signals

With regards to technical analysis, are there ways of determining the confidence level of a directional signal? Taking a relative strength index (RSI) as an example, can the extent to which an asset ...
0
votes
1answer
35 views

Quantum Computing for Quantitative Finance

It's been a while that quantum computing is looked as the next step in computational science. I somewhat always tought we were decade aways from it's happening but it appears I was wrong: ...
0
votes
0answers
11 views

How to reduce variance of mean reversion estimator with maximum likelihood?

I estimate the parameters of an Ornstein-Uhlenbeck process with Maximum Likelihood. The mean reversion speed estimator is well known to be biased. There are methods to reduce the value of the expected ...
1
vote
1answer
49 views

Discount factor taking into account yield curve shape

I have always been told that the discount factor formula is just: $$ DF(T) = \frac{1}{(1+L_{t_0})^T} $$ where $L_{t_0}$ is the LIBOR rate on one period (the first one I guess) and $T$ the number of ...
1
vote
1answer
29 views

ATM volatility and flat volatility

Why do the implied volatility curve and the flat curve cross over the ATM volatility (at 100%) ? Tx
1
vote
1answer
41 views

“Expectation” of a FX Forward

I have an FX process $X_t = X_0 \exp((r_d-r_f)t+ \sigma W_t)$. Now clearly $E[X_t] = F_{0,t}^X$. i.e. a forward contract of the process $X$ starting at time 0 and maturing at time $t$. What if I ...
-1
votes
0answers
17 views

How to find loans for investor collateral

I got this asssigment: Company A lends 20 mil from investor and has to put up investment collateral of 30 mil worth of loans. Company A operates in underwriting business. Collateral loans have to ...
0
votes
0answers
22 views

Why do people use weighted regression with returns?

For example, by ADV. Intuitively it makes sense that a very liquid high ADV stock should carry more weight, but when I try it with some real life data I get higher standard error than unweighted...is ...
4
votes
0answers
91 views

How to trade the Ornstein-Uhlenbeck process?

My question comes from this paper, which is a short version of Avellaneda's paper The picture bellow provides a summary of the equations. Do I understand correctly that in order to trade OU process ...
1
vote
2answers
82 views

How to show that the exponential Vasicek model is not an affine term-structure model?

From the pricing formula, we know that the value at time $t\in [0,T]$ of a zero coupon bond maturing at time $T$ is $$ B(t,T)=E\left(\exp{\left(-\int_{t}^{T}r_sds\right)}\bigg|\mathcal{F}_t\right). ...

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