0
votes
2answers
42 views

How to setup a back test step by step?

I would like to setup a back test for Indian equities, Kindly help out with step by step procedure, No need to go into details, outlining of procedure are enough in bullet point, I will research ...
6
votes
2answers
62 views

SABR Model Closed Form Solution

I've been researching the SABR model and one of the main benefits it seems is that you can obtain a closed for solution of the implied BS volatility in certain cases. In all the papers I've read, I ...
1
vote
2answers
56 views

Put Volatility Smiles and Implied Volatility

I have been observing the option chains of put options with differing maturities. I have noticed that those puts with a close expiry date have the steepest volatility smiles. Can someone please ...
0
votes
1answer
55 views

Delta Hedge, does large stock move produce a loss?

I dont understand how MM protect themselves from large moves in underlying while being delta hedged. Example: MM sels 1 ATM put and sells 100stock (delta = 1) as a hedge. Now what will happen if next ...
3
votes
1answer
54 views

Realized Vol for 15 min interval using second Data

I would like to calculate realized volatility for a 15 min period. Most of the literature I looked up shows how to construct daily realized volatility using intraday data. These literatures does use ...
1
vote
0answers
24 views

student-t asset path

I am trying to simulate an asset path based on a t-distribution. I found a lot of ressources and the fact that it will be difficult to do a path. But now I changed my Geometric Brownian Motion ...
0
votes
0answers
12 views

Beta model for measuring risk

My task is to measure Commodity risk ( Oil) for a company . For that I use the APT model , I run a time series linear regression over 10 years where the independant variables are economical and ...
1
vote
1answer
24 views

Is Asian option in binomial asset pricing model a martingale?

Since it does not have a closed form solution for the price, it's unlikely to be a martingale. However, on the other hand, if we represent the price as a function of the current stock price and the ...
3
votes
1answer
62 views

Importance Sampling for Least Square Monte Carlo

I am currently trying to implement and model an Importance Sampling estimator for Longstaff and Schwartz algorithm for pricing American put options. It is used such that more paths are in-the-money ...
2
votes
1answer
83 views

Valuing derivatives under stochastic interest rates

I would like to price a European option with maturity equals to 5 years. To do this, I'm using the Black-Scholes model with stochastic interest rates. Suppose I choose the CIR model for the risk-...
6
votes
1answer
118 views

Why is the GARCH intercept supposed to be strictly positive?

Maybe it's a simple question but I don't really understand why it is theoretically required. Let's take the standard GARCH(1,1) $$\sigma^2_{t+1}=\omega+\alpha\epsilon^2_{t}+\beta\sigma^2_{t}$$ In most ...
1
vote
1answer
44 views

What does each bar in the empirical average eigenvalues spectrum of the correlation matrix of log-returns of stocks represent?

An example diagram, taken from this paper, looks like follows: What is its physical interpretation? The highest eigenvalue, the paper says, represents market mode. So, what does the difference in ...
0
votes
1answer
31 views

Calculate historical duration based on current duration & historical prices

Suppose I have today current duration of a bond and it's historical daily prices. How from that I can calculate the historical duration? e.g. the value of duration I would saw if yesterday, week ago, ...
1
vote
0answers
40 views

Optimal portfolio construction questions [closed]

I am working on a paper that tries to build an optimal portfolio to hedge various risks (mainly interest rate risk). I have never done this before. Which software program should I use to create an ...
3
votes
1answer
52 views

Dollar-Neutral in addition to Market-Neutral?

What is the point/benefit of using a dollar-neutral strategy in addition to a Beta-neutral strategy? What exactly does a dollar-neutral strategy buy the investor? What's useful about balancing long ...
3
votes
1answer
119 views

Mathematical Derivation of Residual Risk

I understand the difference between Excess, Residual and Active Returns. I also understand what Active Risk; defined as: $\sigma_{r_P-r_B}$ (i.e. standard deviation of the difference in returns ...
1
vote
0answers
13 views

How to calculate optimal monthly withdrawals from an investment with compound interest

I have 1.25M dollars. I want to put it in an investment with 60% annual return paid monthly and re-invest the interest to achieve compound interest. After 15 years, my principal would have grown to ...
0
votes
1answer
50 views

Volatility for time periods with little data

When I want the monthly volatility of stock and I only have data for about one month and I do calculation like this: ...
-1
votes
2answers
50 views

NPV of two annuities

For exam preparation we are given some past papers, however there are no solutions and I would like to know if my logic is correct for the following question: Assume you are 25 years old. An ...
1
vote
0answers
26 views

Problem with determining weights in tangency portfolio (2 risky assets)

I use the following well known formula in order to determine the weight of asset i in the tangency portfolio (in the case of two risky assets): $w_{i,T}=\frac{\sigma[r_2]^2E[R_1]-\sigma[r_1,r_2]E[R_2]...
3
votes
3answers
110 views

What is the rationale behind using SV models with 2 distinct volatility processes?

In the Double Heston model, there are 2 distinct volatility processes. The SDEs read \begin{align} & d{{S}_{t}}=r{{S}_{t}}dt+\sqrt{{{v}_{1}}(t)}{{S}_{t}}d{{W}_{1}}(t)+\sqrt{{{v}_{2}}(t)}{{S}_{t}}...
1
vote
0answers
21 views

How do I build a cross currency basis swap pricer using implied levels generated from fx forwards? [closed]

I'm building a strategy where I would take positions depending on whether the basis swap looks rich or cheap relative to the forwards, inside 1yr maturity. Depending on liquidity the market in ...
2
votes
0answers
30 views

How to apply Kelly criterion to a portfolio made by a stock plus a option?

First of all, assuming a Gaussian, Markowitz, well behaved world. Extensions for non-well behaved world will be welcomed. I know that by a portfolio made by only by one stock (and a risk free bond) I ...
1
vote
2answers
60 views

Simulate drifted geometric brownian motion under new measure

I have a very fundamental question regarding simulation of DRIFTED geometric brownian motion. We have the standard Blackos Scholes model: $dS(t)=r S(t)dt+\sigma S(t) dW^{\mathbb{P}}(t)$, where $W^{\...
0
votes
0answers
25 views

Yahoo Finance data scraper [duplicate]

I am building a small financial web application and I need a data source for price (Adj. Close) and volume data. I have written a scraper to scrape equity data for yahoo finance and can pass this to ...
4
votes
0answers
23 views

Polynomial interpolation of corrected lognormal distribution

Can anyone provide a formula for a polynomial interpolation of the corrected lognormal distribution used to model returns traditionally resulting from the wrong Brownian motion generated model? ...
1
vote
1answer
74 views

Calculating the global minimum variance portfolio in R?

I am attempting to use the globalMin.portfolio command to calculate the global minimum variance portfolio in RStudio. My code is as follows (note that several libraries have been included which may ...
2
votes
1answer
35 views

How to compute the yield on the Ultra-Bond Treasury Futures

I am trying to compute the yield on the Ultra-Bond Treasury Futures which is roughly 172.2187. Heres the description of the contract: U.S. Treasury bonds with remaining term to maturity of not ...
1
vote
0answers
34 views

Minimum Variance Portfolio problem [closed]

Minimum Variance Portfolio Suppose there are N stocks in the investmentable universe and we have a fully invested portfolio investing 100% of the capital. The Covariance matrix is denoted as ∑. We ...
3
votes
1answer
85 views

Copulas and default probability

Assume a basket of 3 credits, each with some unconditional default probability ${q_i}(t) = \Pr [{\tau _i} \le t]$. Consider the joint CDF $H$ of the default times is given by $H(t,t,t) = \Pr [{\tau ...
1
vote
0answers
30 views

Estimating time-varying tail dependence for Archimedean copulas

Patton (2006) defines the upper tail dependence coefficient for a time-varying bivariate SJC copula as $$\tau^u_t=\Lambda \left(\omega_u + \beta_u \tau^u_{t-1}+\alpha_u \frac{1}{10}\sum^{10}_{i=1}|u_{...
0
votes
1answer
64 views

Portfolio with a certain pay-off curve

I would like to find a relevant optimization option's portfolio models which can describe a certain pay-off curve (objective function) under same assumptions. For example, assumptions on how to limit ...
0
votes
1answer
32 views

Beta = 1 and 0. Type of portfolios

I read in E. Quian's "Quantitative Equitity Portoflio Management" the following: A traditional long-only portfolio [with unit beta] would have most of its risk in the market risk. However, a zero ...
2
votes
1answer
62 views

Selection of optimal backtesting parameters

Suppose I backtest some strategy on in-sample data while varying two parameters, say $X$ and $Y$. $X$ can take the values $\{3,6,9,12,15,18\}$ while $Y$ can take $\{10,15,20,25,30\}$. I want to select ...
3
votes
1answer
142 views

Could someone teach me how to construct the portfolios by compute (like using R, Excel or Eviews)

Recently, I am doing my dissertation that covers asset pricing theory. The empirical test of Fama 3 factors model is an important part of this dissertation. Please let me review the fama model. Fama ...
4
votes
2answers
112 views

Using R with princomp to create hedge baskets

I am experimenting to try to find better ways to hedge some of our equity portfolios. It's easy enough to use R to get a PCA breakdown of exposure for a portfolio but I can't figure out how to then ...
7
votes
1answer
60 views

Who pays for sovereign ratings?

Does the "issuer-pay" model hold also for sovereign credit ratings? Do States pay for having their bond being rated?
2
votes
1answer
40 views

Time series of European sovereign credit ratings by the Big Three?

I would need time series, from 2000 to 2015 (if possible) of sovereign credit ratings by Moody's, S&P and Fitch. Could you suggest me a source or provide me such a dataset? Thank you very much!
4
votes
1answer
45 views

What approaches are there for keeping local and remote order books in sync?

Scenario: developing a custom application which defines a structured workflow for manual order submission to Bloomberg EMSX; it should minimize own persisted state and rely on the remote order book as ...
2
votes
2answers
36 views

How to take care of newly auctioned yield/price in fixed income data

This is a financial data cleaning question. I have raw price and yield data for US cash treasury across the curve. In the time-series there are jumps on the day after the treasury auction results come ...
0
votes
1answer
38 views

Special term for 'intersection' of option price

Suppose, I have written two ordered lists: $S_{call}= (\textbf{8000, 8050, 8100}, 8150, 8200, 8250)$ and $S_{put} = (7850, 7900, 7950, \textbf{8000, 8050, 8100})$. Entities are correspond to strike ...
1
vote
0answers
23 views

Interest rates - Swaptions implied volatility - Volatility anchoring with Black and with normal volatilities

In a LMM+ with displacement factor a volatility anchoring technique is used, i.e. a long term volatility assumptions is applied, derived from historic time series. Should I adjust this historic ...
0
votes
2answers
40 views

In an example of “call options”

The following is an excerpt from Introduction to the Mathematics of Finance by Roman: As a more concrete example, suppose that IBM is selling for $\$100$ per share at this moment. A $3$ month ...
1
vote
0answers
64 views

Cointegration for forex using ARMA model to forecast the spread

I am working on an automatized quantitative strategy that use cointegration in Forex. I am backtesting this strategy in Python. Please see below the python file: https://drive.google.com/file/d/...
1
vote
2answers
71 views

Conditional probability of geometric brownian motion

I created paths using GBM to implement The stochastic mesh method. But the method requires the conditional distribution, given some S(t) the probability of S(t+1). I've searched and can't find this ...
1
vote
1answer
121 views

Modeling the Stock Market [closed]

Hi I was wondering what is the model that best describes the price movement of the stock market? A Brownian motion Process with drift? An Ornstein Uhlenbeck_process? (where the long term mean ...
0
votes
0answers
29 views

How to perform batch-trading using Interactive Broker API?

My definition of batch-trading: Given $N$ BUY orders, $M$ SELL orders and $O$ ($O < N$) as the max number of open positions to be held. Batch-trading should monitor the orders and when $O$ BUY ...
1
vote
0answers
32 views

Is it possible to place hidden order inside spread when trading E-mini S&P 500?

My question is not about hidden orders in general. In equity market a trader can post his hidden order inside spread, is it the same way for E-mini S&P 500?
1
vote
0answers
37 views

“Risk” Factor vs Double Sorts

With regards to a cross-sectional asset pricing (stocks) study, I am testing if one variable can explain another. One common approach to do this, is to use the double-sorting portfolio technique (sort ...
1
vote
0answers
46 views

How to write time-varying functions in R? Applied example

Let's say I want to use a Gaussian copula $$C_{R_t}(\eta_1, ..., \eta_n) = N_{R_t}(N^{-1}(\eta_1), ...,N^{-1}(\eta_n))$$ with a time-varying correlation matrix $R_t$. Through DCC we model the ...

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