1
vote
2answers
236 views

Forward rates formulae

I am now working with forward rates and have somehow been asked to use an "intuitive" formula for forward rates. $$ \frac{F(0,s,T)}{F(0,t,T)} = \frac{F(s,s,T)}{F(s,t,T)} $$ I can understand the ...
2
votes
3answers
71 views

Inconsistent Definition of Arbitrage in Bjork?

In Tomas Bjork's Arbitrage Theory in Continuous Time (or here), $\exists$ what seems to be 2 inconsistent definitions of arbitrage: The first definition is for the single period Binomial model The ...
0
votes
2answers
149 views

Getting the next price of a GBM with reversion

Here is the "twin" question of Getting the next price of a GBM (Geometric Brownian Motion) but for GBM with reversion As in that case, I'd like to write a formula for the next price, as function of: ...
0
votes
1answer
71 views

Getting the next price of a GBM (Geometric Brownian Motion)

I am writing a program that creates realizations of a GBM. Starting from an initial price, I get the following price with this formula: ...
0
votes
0answers
90 views

Does Implied Volatility always exist?

I am considering a simple Heston Model Market with one risky and one riskless asset. The dynamics of the riskless asset is simply $dB_t=r*B_t*dt$ The dynamics of the risky asset is as follows, $ ...
0
votes
1answer
26 views

How to calculate the pre-tax cost of debt for a mix of bonds allotted to a company?

I need to calculate the effective interest rate a company X is paying on the total debt it has been loaned (to arrive at the Cost of Debt) for the FY 2011-12. Its long term borrowings are a mix of ...
0
votes
1answer
53 views

Free stock split history data source?

Does anyone know of a reliable (free) source of historical stock split information? There's a YQL api for pulling down 'key stats' on a symbol but it only contains the LastSplitDate. Adjusted close ...
2
votes
3answers
100 views

What is the Most Efficient Way to Calculate the Internal Rate of Return IRR?

I have built a program that prices financial assets and it does this in part by calculating the IRR. The problem is that it does not run as quickly as I would like it to. I currently use the ...
2
votes
2answers
89 views

IP API Active X for Excel refresh rate

I have been working on the EXCEL DDE sample worksheet and works fine and now I would to upgrade to ActiveX instead of DDE as I heard it is more robust but I found the refresh rate of ActiveX is even ...
0
votes
2answers
105 views

How can I calculate the strike price or implied volatility from a given delta?

I have calculated the implied volatility for all strikes of a certain product (options on futures) and approximated the ATM volatility. My question is how can I figure out the implied volatility for a ...
0
votes
1answer
105 views

Mysterious disappearance of options from historical datasets

I am in the process of analyzing historical options data, and I keep finding options that mysteriously disappear before they are due to expire. For example: For the QQQ $69 Put, ...
1
vote
2answers
58 views

Counterparty risk tutorials

I want to learn about the latest methods used to measure credit risk, which I believe is same as counterparty risk. Can you please direct me some links for this. I have come across a few of them but ...
1
vote
2answers
56 views

How To Account For Inflation Over Historical Data

I believe inflation is greatly affecting my sample data, even when using percent-changes for movements. I have read this post, which recommends the formula ((Current-Base Year CPI) * Price) / ...
3
votes
0answers
158 views

Kelly Capital Growth Investment Strategy (Example in R)

In the paper Response to Paul A Samuelson letters and papers onthe Kelly Capital Growth Investment Strategy pages 5 and 6 Dr William T Ziemba, gives a praticle example on Kelly Growth. I’m trying to ...
2
votes
2answers
194 views

How Much Capital is Needed to Start an Arbitrage Strategy?

I'm trying to experiment with a simulated simple arbitrage strategy. I'm not doing this to actually invest, I'm just curious if the market is inefficient enough for this to be feasible. Every ...
3
votes
2answers
135 views

Using Fourier Transforms for stock option pricing with stochastic interest rates

Can Fourier transforms be used to derive the joint probability density function of stochastic interest rates and stock price Brownian motions of call options under stochastic interest rates? So lets ...
3
votes
3answers
255 views

Implementing A 50/50 Prediction Model Strategy

Reworded the question for clarity (see edits for original post): How can one knowingly foresee where a 50/50 prediction model will be profitable? For previous posts: I understand that if I have a ...
1
vote
2answers
88 views

Joint distribution from expectations

Given two random variables $X$ and $Y$ and let $K$ be a constant value. Assume the expectation $\mathbb{E}[X(Y-K)^{+}]$ is given for all possible values of $K\geq 0$. Is there a way to derive the ...
2
votes
1answer
66 views

How to distinguish total return and absolute return funds in the KIID

I hope this question is on-topic. It is not relally a quant question but it is a question that quants in risk management in asset management firms have to answer: In the KIID (key investor ...
1
vote
1answer
71 views

Plot Evolution of portfolio weights over time in R [closed]

Is there any function for plotting the evolution of portfolio weights over time in r?. I have a matrix of portfolio weights from an equal weighting strategy at rebalancing times and want to plot ...
1
vote
3answers
181 views

What are the unfair order execution/routing advantages HFT firms apparently have?

I originally thought that you have an orderbook per stock and orders would be filled on the time at which they arrive. Arrive first and you get the best price and the qty in the orderbook is reduced ...
0
votes
0answers
42 views

commodity futures pricing vs. underlying spot rates in volatile markets, at depth of book

Are futures contracts or their underlying spot rates, more or less efficient, at depth of market, with volatility? Say for example we have: 1 E7 (CME contract) = 62,500 euro Should the future or ...
0
votes
0answers
16 views

For Probability of Default in retail credit what is more popular logistic regression or GLM with Poisson distribution and why?

Trying to understand which regression model is more popular in retail credit card industry Logistic regression or GLM with Poisson distribution and why?
0
votes
1answer
43 views

Correlation of Dividend Yield Index/Stock

I need your experience and intuition about dividend yields. Indeed, I would to know if the dividend yield of and Index is correlated with the dividend yields of it's componenets separately? The ...
0
votes
1answer
40 views

Combining BHHH and Levenberg Marquardt

I already asked a question related to this here: How to apply Levenberg Marquardt to Max Likelihood Estimation I know understand how Levenberg Marquardt (LM) can be applied to the objective ...
0
votes
0answers
27 views

Obtaining historical data of individual level predictions from prediction markets

I have been searching the internet but was unable to find data of the following form: prediction of events for which we already know the outcome (i.e. markets that have already closed) data for each ...
0
votes
1answer
38 views

Future spot price versus current forward price

Which are the two conditions necessary to claim that the future spot price will have as many chances to be above or below the current forward price?
0
votes
1answer
29 views

Common point between IR and Vol option pricing models?

What is the common point between pricing models on options on Interest Rates and options on Volatility?
2
votes
1answer
79 views

How do I prove that $\lim_{K\searrow0}\frac{P(K,T)}{K} = \mathbb P(S_T=0)$?

I am trying to prove that $$\lim_{K\searrow0}\frac{P(K,T)}{K} = \mathbb P(S_T=0)$$ where $P(K,T)$ denotes the put option price with maturity $T$ and strike $K$ for some stock $S$. Assuming interest ...
2
votes
1answer
86 views

How to apply Levenberg Marquardt to Max Likelihood Estimation

In this paper on p315: http://www.ssc.upenn.edu/~fdiebold/papers/paper55/DRAfinal.pdf They explain that they use Levenberg Marquardt (LM) (along with BHHH) to maximize the likelihood. However as I ...
1
vote
2answers
105 views

what is the actual point of vega on real option data

For a call option, we know that the vega is the derivative of the price wrt to the volatility. However the volatility, in that context, actually refers to the implied volatility of the specific call ...
3
votes
5answers
123 views

economic facts that causes the financial time series to be heavy tailed

When reading a tutorail on extreme value theory, I once meet the following claim ...
5
votes
1answer
202 views

Regime-Switching Model for detecting market shifts

I'm always wondering whether anyone has utilized regime-switching models successfully in forecasting or trading. Academia has long discussed this topic in-depth, such as using Regime Switching ...
2
votes
2answers
141 views

How to combine trading signals to achieve higher capital efficiency?

I trade use a completely automated approach where all signals are generated by proprietary trading strategies. However, recently I encountered an challenging problem: Imagine we have 3 Strategies ...
7
votes
6answers
482 views

Self-financing and Black-Scholes-Merton formula

Self-financing is an important concept in financial product replicating, normally used in pricing. I read about several ways to derive Black-Scholes-Merton (BSM) formula. Seems some approaches ...
2
votes
1answer
150 views

Does pricing quant still have bright future?

With regulators tightening the tether, tradings are shrinking and exotic products are fading out, or as my quant friends told me so. By the lag of education to the market, more MFE graduates are ...
1
vote
1answer
99 views

In a Black-Scholes world, why must volatility be strictly increasing in time-to-expiration?

This question is from Rebonato's Volatility and Correlation 2nd Edition. Rebonato states that if $\sigma_T^2T$ is not strictly increasing, it would be simple to set up an arbitrage. Unfortunately ...
3
votes
1answer
120 views

Arbitragefree Pricing: Q vs. P

I read that the Fundamental Theorem of Asset Pricing states, that a market is arbitrage-free if and only if there exists an equivalent martingale measure Q, under which the discounted asset price ...
2
votes
2answers
98 views

How current prices is formulated in markets?

I can't understand how immediate prices are formulated in stock & currency (Forex) markets. I have been informed that every tick means one new deal that closed in current price, but this can't be ...
1
vote
3answers
136 views

Do hedge fund trading desks use portfolio optimization?

I tend to think that hedge funds that actively trade (and most of the ones I have seen trade very actively), don't use optimization methods like MVO or ...
-1
votes
1answer
47 views

European Option Technical Exercise

I like to ask a practical question regarding the exercise of European Options: As we know, one may exercise a European option only at maturity $T$. But for example, if the option can be exercised ...
1
vote
1answer
98 views

Pricing an interest rate swap using Eurodollar futures

I see this posted but no answer given. I think it would be a good idea if we have a question on here to illustrate an example of how to price an interest rate swap. So far, I understand that that for ...
11
votes
4answers
492 views

Quantitative Math required for Market-making?

I understand there is an awful lot of Quantitative Math required for statistical arbitrage/algorithmic trading. However, would someone "in the know" be able to tell me whether there is less ...
1
vote
1answer
52 views

forward vs spot simply-compounded spot interest rate

Question about forward vs spot simply-compounded spot interest rate.Some definitions $P(a,b)$ a zero coupond price at time $a$ and maturity $b$ $L(a,b)$ simply compounded spot interest rate set at ...
0
votes
1answer
116 views

Bloomberg Zero Coupon Rates

As some of your may know from my other posts, I am working on a Dynamic Nelson Siegel (DNS) based relative value trading model. On simulated data (which satisfies all the assumptions) of the DNS it ...
0
votes
1answer
52 views

OIS discounting pre and post crises

I have a Dynamic Nelson Siegel (DNS) based rv model. I want to know if I can use pre and post-crises curves interchangeably in my calibration and out of sample testing. I.e. those without OIS ...
0
votes
3answers
202 views

What Is A Good Success Rate Using Machine Learning For A Beginner?

I know this question will be quickly destroyed and my account summarily banned, but I just have to ask: For a trader using machine-learning algorithms (SVMs, ANNs, GAs, Decision Trees) for ...
1
vote
1answer
40 views

is there an accepted method for quantifying risk of inaccuracy of nascent trm systems?

Have a somewhat meta question here. I am part of a trading risk management implementation project. I also manage day to day risk reporting to management and the trading desks. Our implementation was ...
0
votes
2answers
51 views

Infinite autocorrelation - Unit root?

I have a time series of gold prices, on which I want to build an ARIMA model. The series is autocorrelated and if I can difference as often as I want, it always is. First: data: d1gold Dickey-Fuller ...
1
vote
4answers
133 views

Why can sometimes stock prices rise when interest rates rise?

Basic macroeconomics theory states that stock prices are inversely correlated with interest rates, i.e., when interest rates rise, borrowing is more costly, and thus companies with huge debt would be ...

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