All Questions

0answers
64 views

Understanding how to calculate position profits and trading profits

I am analysing a data set of trader transactions and would like to implement the methodology found in the paper by Fishe and Smith 2012. The main problem I am having is understanding the difference ...
1answer
63 views

When are implied and real world parameters the same?

Suppose $T$ the maturity of a risky bond which defaults with probability $p$ over its lifetime. If it defaults it pays zero. Thus to price this bond in risk neutral terms would give ...
1answer
80 views

Why does expected price of OTM option not equal to BS price?

If I assume that stock returns follow normal distribution with drift = 0% and S.D. = 10%. In the long, if I keep investing in this stock for a year with the same capital every year for a consecutive ...
1answer
40 views

Local Vol Model (K, T) to (St, t)

I'm new to local volatility model. From Dupire's paper and most of the textbooks, they derived the local vol $\sigma(K, T)$ in the $(K, T)$ (i.e., strike and maturity) space, from call price or ...
0answers
76 views

generalized black scholes

I understand how to derive the black scholes solution if $dS_t$ = $\mu S_tdt$ + $\sigma S_tdW_t$ and r is constant. The solution is c(t, x) = $xN(d_{+}(T - t), x))$ - K$e^{-r(T - t)}N(d\_(T - t), x))$ ...
1answer
26 views

How to get Multivariate Betas from an Estimated EWMA co variance Matrix?

I have a portfolio of 4 assets. I also have returns for 3 indices. I want to get the multivariate betas for these 4 assets-based on these assets. I only have the 7 x 7 covariance matrix estimated by a ...
0answers
24 views

Multi-objective optimization: Where to find qualified examples for portfolio management?

I am looking for qualified examples of multi-objective optimization applied to a portfolio management situation in non-normal markets. Where can I find one or more examples of such a multi-objective ...
1answer
41 views

Is it possible that some types of financial systems can resonate?

Financial systems can certainly be modeled using the same tools physicists use to model dynamic physical systems. The validity of such is evidenced by models such as that developed by Black and ...
0answers
62 views

Is it possible to generate Alpha by taking only systematic risks?

I read somewhere that to generate Alpha one has to take idiosyncratic risks. But is it not possible to generate alpha by taking just systematic risks. There could be a asset allocation strategy where ...
1answer
73 views

How can an FRA create arbitrage opportunities?

I'm working through Options, Futures and Other Derivatives (beginner trying to understand investment banking). I've more or less followed the discussion of interest rates, forward rates and forward ...
2answers
77 views

How to get twice the expected return of S&P 500

If I create a diversified portfolio of 2*beta stocks, can I expect to get twice the return of S&P 500. Example: Out of the universe of stocks available to me I randomly choose 10 stocks whose ...
1answer
58 views

InteractiveBrokers server outage every Saturday

I am fetching some historical data from Interactive Brokers with their API. But I got a bit of annoying their HongKong history data server ('hkhdm' in the connection status window) get disconnected ...
0answers
17 views

CDS credit spreads vs default probability

What is the relationship between a CDS credit spread (as set by the CDS issuer) and the instantaneous default probability (as estimated by the CDS issuer)? I hear they are similar but not the same. ...
1answer
65 views

Is printing money really a bad thing?

I have 2 related questions about increasing money supply: (I know high school level economics.) 1) In an economy which has low growth and deflation, is it at all a bad thing to print money? In fact, ...
1answer
13 views

Build spot rate curve with multiple treasuries for each maturity

I have the following treasuries: T 0 1/4 01/31/15 at 100.1236 T 2 1/4 01/31/15 at 101.1257 T 0 1/4 02/15/15 at 100.1251 T 4 02/15/15 at 101.9994 T 11 1/4 02/15/15 at 105.6269 T 0 1/4 02/28/15 at ...
2answers
37 views

Option greeks: sensitivity to 1% move

In a Black&Scholes framework how can I compute the following sensitivities: to 1% move in the underlying price to 1% move in implied volatility I would like the greeks to tell me how many ...
0answers
22 views

sovereign-bond-interest-rate-spreads-basis-points-over-us treasury

Good day I would like to understand the sovereign-bond-interest-rate-spreads-basis-points-over-us treasury concept, does it mean that we should add the ...
0answers
73 views

what is the definition of resetting tenor and time to maturity tenor in libor rates

I have a question about the definition and understanding of libor rates. We have the time to maturity tenor, $T$, which is the time over which i borrow or lend money. For libor we also have the reset ...
2answers
78 views

Time-independent local volatility

Suppose somebody provides us with a surface of European call prices $C(\tau,K)$ where $\tau$ stands for time-to-maturity and $K$ for the strike. By Dupire's results, there is a unique local volatility ...
0answers
16 views

How to calculate the growth rate of a growing annuity? [closed]

I have a question that seems basic but has given me fits. If I have the following known variables, how do I solve for the growth rate? Known variables: initial payment outstanding balance number of ...
0answers
28 views

Basket Default Swap (BDS)

I would like to understand better the $n^{th}$ to default pair spreads of a basket default swap containing $m>n$ entities. For example, consider 2 single name CDS's with same spread and same ...
0answers
12 views

Non-overlapping ranges of HCNN' observables and of state transition function

In the artcicle Forecasting and Trading the High-Low Range of Stocks and ETFs with Neural Networks HCNN is used for forecasting of nine time-series, namely: returns of the lows returns of the highs ...
0answers
65 views

Is Least Median Squares (LMS) regression commonly used in Finance?

Least Median Squares is often argued to give more stable results than does OLS. Whereas in OLS one minimises the mean of squared residuals, in LMS, one instead minimises the median of squared ...
3answers
289 views

What does it mean to be “long or short in volatility”?

I've heard a question regarding pricing of european calls. The question is: Is the call long or short in volatility when it is (deep) OTM? What is the profile of the implied volatility? I ...
0answers
12 views

How does implied volatility of puts relate to strike price in presence of negative news? [duplicate]

There is a lot of literature available but i don't kind understand that if there is a negative news about a stock with the traders why do puts with lower strike tend to have higher implied volatility ...
1answer
43 views

Implied Volatility Calculation for Deep In The Money Calls, Numerical Issues

I have two implementations for finding the implied volatility under Black-Scholes formula. One is bisection and the other is brent's method. (I know Newton-Raphson is popular due to speed and will ...
1answer
46 views

Swapping expectation operator with differential operator

Suppose I have a general SDE $dx_{t} = \mu dt + \sigma dz_{t}$ Then I can put $E[]$ on both sides to get $E[dx_{t}] = E[\mu dt] + E[\sigma dz_{t}]$ Now comes the question: I've seen some formulas ...
0answers
10 views

Ratios to determine company's current purchasing power

what are the parameters which will affect a company's ability to buy a new product or service based on its current financial situation. I found many ratios but I need specific metrics or ratios which ...
0answers
36 views

How to value an expansion option?

Fair warning this is help with homework. I am not asking for an answer but some guidance or a formula would be nice. I have absolutely no background in finance and this class is online with no ...
0answers
48 views

Order book Limit Order book

I am trying to make a Limit Order book from an ITCH file using r. what is the basic difference between orderbook and limit orderbook? R has a package for orderbook I think
0answers
58 views

R TTR/RSI does not behave like a Bloomberg RSI

The implementation of TTR:RSI differs slightly from the RSI calculated in Bloomberg, see more details here. I use in TTR the SMA, which simply calculates the mean, that is a walking window of: ...
2answers
83 views

Black-Litterman, how to choose the uncertainty in the views $\Omega$ for smooth transitions form prior to posterior

In Black-Litterman we get a new vector of expected returns of the form: \begin{align} \Pi_{BL} = \Pi + \underbrace{\tau \Sigma P^T[P\tau\Sigma P^T+\Omega]^{-1}}_{\text{correction}}[Q-P\Pi] \end{align} ...
0answers
19 views

Immunising pension liability due in 4y?

Help required please on calculating the amount of Zero Coupon Bonds and annuity bonds that are needed to immunise a portfolio against interest rate risk, for a pension fund that expects to pay £500bn ...
2answers
131 views

Countries and/or exchanges which don't allow algo-trading

I am doing a research paper on the effect of algo-trading on capital markets. In order to do this, I plan to do an OLS comparison of Countries and Exchanges who ban algo-trading platforms and those ...
1answer
97 views

Real-time market data from the exchanges: what should we be aware of?

We receive daily end-of-day data from a data vendor (i.e. not direct from an exchange) and are comfortable with this. We are now wanting to receive live data, and after a few enquiries we are feeling ...
0answers
27 views

Building curves using onshore or offshore JPY overnight rates?

I am trying to build Japanese Yen interest rate curves. When defining the curve instruments for the 'OIS' (discount) curve (aka TONAR), I am uncertain as to which rate to use for the overnight deposit ...
1answer
60 views

What are the parameters of the function PORTVAR in Matlab?

According to the Matlab help, Portvar will give the "Variance for portfolio of assets" by entering the returns of the Assets and the corresponding weight. However, it does not explain the parameters ...
1answer
45 views

How to price an option on a dividend-paying stock using the binomial model?

This is actually an exercise from a course. But I don't completely understand the wording of the question. A stock is now trading at 100 dollars. Its price over the next 6 months evolves as a two ...
0answers
28 views

What is the the correct treatment while short for the cash in lieu of a reverse split?

Long case: Assume I am Long 50 shares and there is a 2 for 3 reverse split. Let's denote the quantity of stock by x Prior to the split Portfolio is $-cash_0$ $+50x$ I am then at \$-cash_0 +33x ...
0answers
36 views

Using the R package “ termstrc ”

I am attempting to use the function estim_nss from the termstrc package in R. However, I am experiencing the following error: ...
2answers
113 views

How to obtain a log of all trades done on the Nasdaq or other major US exchange?

I'm looking to do a research paper on the impact of high frequency algo-trading on individual firms. In order to do that I need to be able to determine firms that have been high frequency traded. My ...
0answers
58 views

Why is this delta-hedging/P&L example on a variance swap call correct?

I'm looking into this article about var swaps: http://sbossu.com/docs/VarSwaps.pdf and not sure how to correctly interpret Exhibit 2.1.1. "In this example an option trader sold a 1-year call ...
1answer
49 views

Longevity risk modelling

What is Longevity risk, and how to model it under DC and DB pension plans? characters|characters|characters|characters|characters|
3answers
85 views

Portfolio Optimization - Zero beta portfolio

I am trying to solve a optimization portfolio in R in which I do the following constraints: Set weight sum to within a boundary Set return to a certain value Set portfolio beta to 0 The purpose ...
0answers
18 views

Does anybody know how to use jquantlib with eclipse?

I'm currently beginning to work on my masters project in QF and I wanted to use jquantlib for my work. I've searched the internet quite a bit but couldn't find good understandable info on how to work ...
0answers
18 views

If you knew market’s expected spot rates, could you deduce if there is a forward-risk premium?

Suppose that you were importing small electric transformers, that delivery from all suppliers would take approximately 6 months, and that you faced the situation shown in the table below: The Table ...
1answer
37 views

Geometric Returns values less than -100%

I am trying to find the geometric return for semi-annual log-returns in Excel. However, I do not know how to handle values less than -100%.... ...
1answer
41 views

How to download intraday data regarding a particular stock exchange from bloomberg at one time

Good day I would like to know how to download the intraday data regarding a particular stick exchange at one time, (I need to analyse all the equities listed on it) Second I need to verify that my ...
1answer
51 views

Where can I find US public company bankruptcy data

I am doing a thesis about firm survival in time of crisis (2008-2009) and I would like to know where can I find publicly available database about company bankruptcy. Since I have thousands of ...
0answers
36 views

Portfolio Performance Metrics

In comparing different long portfolios in stocks for 15 quarters, where at each quarter I re-balance the portfolio. So what I have done is made a function that outputs the rand value of the portfolio ...

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