# All Questions

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### 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 ...
54 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 ...
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### 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 ...
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### 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! ...
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### 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 ...
185 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 ...
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 ...
53 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 ...
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 ...
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 ...
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: ...
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### 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 ...
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### 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 ...
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
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### “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 ...
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 ...
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 ...
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### 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 ...
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### Do efficient market hypothesis and random walk theory convey the same concept?

According to investopedia efficent market hypothesis is The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market ...
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### Option delta - Conditional probability definition?

Can someone help me interpret this definition of delta? Delta is a conditional probability of terminal value (St) being greater than the Strike (X) given that St > X for a call option. Is the ...
71 views

### Quanto/Compo adjustments - Product of two geometric brownian motion

Let's say I have two processes $X_t =X_0 \exp((a-\frac{1}{2}\sigma_X^2)t +\sigma_X dW_t^1)$ and $Y_t=Y_0 \exp((b-\frac{1}{2}\sigma_Y^2)t +\sigma_Y dW_t^2)$ and I then multiply them together (like ...
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### model to predict variable evolution [migrated]

Suppose that I have a set of variables X1 X2 and X3 that explain the evolution of a ...
18 views

### Quantlib xll - Converting deposit/swap curve to zero curve

I am trying to create a spreadsheet using the Quantlib xll to convert deposit/swap rates to zero rates. I tried to implement such by referencing to the C++ code listed here: How to sum interest rate ...
26 views

### Why NYSE is not included in TAQ data for NASDAQ listed companies?

I am using TAQ data to see from which exchanges bids (or asks) are coming. I have got this for AAPL (Apple company, listed in NASDAQ) for a sample day: ...
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### Daycount Actual/Actual AFB example

This question is about the following example in Wikipedia about time factor using the Actual/Actual AFB daycount. Assume that the $t_1=\text{28 Feb 2004}$ and $t_2=\text{29 Feb 2008}$. There are ...
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### SABR Calibration: Normal vs Log-Normal Market Data

This question is about getting some clarification as to how to understand market quotes for normal & log-normal vols together with certain model assumptions. So let us define ...
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### approximating fBm stochastic integral

Suppose I have the following stochastic integral: $$\int_a^b f(t)dB_H(t)$$ with the term $dB_H(t)$ a fractional brownian motion with associated $H$ parameter. Is it true that for $H \in (1/2,1)$, ...
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### How to choose a GARCH model which delivers iid standardized residuals?

For my thesis I first need to examine nine financial time series and fit a conditional volatility model such that the obtained standardized residuals ($z_t = \epsilon_t / \sigma_t$) are approximately ...
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### Where to find good notations to teach investment portfolio maths?

I don't know whether this question is in order here. I do a bit of teaching and I am preparing my own notes but I thought that his should not be necessary. In which book/pdf on the web can we find a ...
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