# All Questions

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### Copula models and the distribution of the sum of random variables without Monte Carlo

There is a vast literature on copula modelling. Using copulas I can describe the joint law of two (and more) random variables $X$ and $Y$, i.e. $F_{X,Y}(x,y)$. Very often in risk management (credit ...
697 views

### How to forecast expected volatility from high-frequency equity panel data?

I'm wading through the vast sea of literature on realized volatility estimation and expected volatility forecasting (see, e.g. Realized Volatility by Andersen and Benzoni, which cites 120 other ...
4k views

### Is statistical arbitrage on FX possible?

Do you know of any papers which consider pairs trading (or statistical arbitrage) on foreign exchange? I couldn't find any. I asked this question on several forums and got no reply. Thus I guess this ...
1k views

### What is a good topic on financial time series analysis for master thesis?

Can someone suggest a topic or some reasonably narrow area in financial time series analysis (e.g. statistical, machine learning, etc.) which can make a good topic for a master thesis? By 'good' I ...
1k views

### Value-at-Risk of the sum of two dependent lognormal random variables

Hy I posted this question first at mathflow.net they suggested me this page, which I was not aware of. Question: Let $(X_1,X_2)$ be a multivariate normal random vector ($X_1$ and $X_2$ need not be ...
275 views

### Are BSDE's used in practice?

In the academic applied probability/math finance community, Backwards Stochastic Differential Equations (BSDE's) are extremely popular, and they provide a single framework for several different ...
746 views

### Modelling with negative interest rates

For a project, I am interested to model the impact of recently negative interest bonds on the portfolio. The literature on modelling negative interest rates is limited, and the only theory I could ...
603 views

### Quantitative Analysis Games on Investing?

I have been playing a quantitative investing game (instructions here) that is actually quite interesting, teams have some time to decide their next moves. It requires all kind of knowledge such as ...
865 views

### Cleansing covariance matrices via Random matrix theory

I am exploring de-noising and cleansing of covariance matrices via Random Matrix Theory. RMT is a competitor to shrinkage methods of covariance estimation. There are various methods expressed usually ...
295 views

### How to estimate the following model?

Suppose I have the following model: $$r_t=\sigma_t * \epsilon_t$$ where $r_t$ is the return at time t, $\sigma_t$ is the volatility, the model used to model this volatility is an exponentially ...
892 views

### How do I price OANDA box options?

How do I price OANDA box options without using their slow and machine-unfriendly user interface?: http://fxtrade.oanda.com (free demo account) sells "box options": If you already know what a ...
4k views

### Is “eoddata” a good data source?

Not sure if this is a relevant question for site, but I am looking to move to www.eoddata.com as my data source. If anyone has used it, can you tell me how the data quality is ? I am currently ...
741 views

### Keeping a track record honest

I want to start a blog/newsletter and maintain a track record of trades I recommend. I have a never-expiring demo account for this purpose. How do I keep this track record "honest"? Three months ...
2k views

### What exactly is meant by “microstructure noise”?

I see that term tossed around a lot, in articles relating to HFT, and ultra high frequency data. It says at higher frequencies, smaller intervals, microstructure noise is very dominant. What is ...
1k views

### Looking for a recommendation for a real life volatily trading book.

Recently I started working in an algotrading company as a programmer. After I studied that subject a little in the university and read a book or two in that field I gained a little knowledge in that ...
4k views

### Why does implied volatility show an inverse relation with strike price when examining option chains?

When looking at option chains, I often notice that the (broker calculated) implied volatility has an inverse relation to the strike price. This seems true both for calls and puts. As a current ...
2k views

### References for developing an automated trading system?

I am looking for references on the architecture of automated trading systems and the trading algorithms behind them. I am more interested in system development than analysis. A couple of books I ...
1k views

### Hedging stocks with VIX futures

It seems that VIX futures could be a great hedge for a long-only stock portfolio since they rise when stocks fall. But how many VIX futures should I buy to hedge my portfolio, and which futures ...
1k views

### How to optimally allocate capital among trading strategies?

I'm trying to find an optimal way to allocate capital among trading strategies. "Quantitative Trading" by Ernie Chan claims on page 97 that the optimal fraction of capital to allocate to a given ...
715 views

### Resources for finding scholarly research on topics in quantitative finance?

A friend and I have taken up an interest in quantitative finance, and we're pretty much starting from scratch—neither of us have backgrounds in finance, but rather electrical engineering and ...
1k views

### How to generate a random price series with a specified range and correlation with an actual price?

I want to generate a mock price series. I want it to be within a certain range and have a defined correlation with the original price series. If I choose, say, oil, I want as many time series which ...
860 views

1k views

### Why do expected return models and risk models use different factors?

This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler. I always approached expected return and risk modeling as separate ...
659 views

### How can higher co-moments be applied to portfolio optimization in an asset allocation context?

Traditional portfolio optimization involves mean variance optimization, where only the mean and covariance matrix of returns are estimated. What asset allocation and portfolio optimization techniques ...
1k views

### Has spectrum analysis ever been used successfully to analyse historical price data?

Spectrum analysis is often used to analyse waveforms. A common configuration, for example, is to create a graph where X is time, Y is frequency, and the brightness of each position represents ...
1k views

### How to interpolate gaps in a time series using closely related time series?

I am trying to construct a daily time series of prices and returns for some large universe of securities. However, all I have available are a monthly time series of the prices/returns (as well as ...
689 views

### Deterministic interpretation of stochastic differential equation

In Paul Wilmott on Quantitative Finance Sec. Ed. in vol. 3 on p. 784 and p. 809 the following stochastic differential equation: $$dS=\mu\ S\ dt\ +\sigma \ S\ dX$$ is approximated in discrete time by ...
371 views

### How does one measure the effect of latency on potential returns?

I am looking to evaluate the hypothetical advantage one trading system has over another in terms of the possible returns given their latency. Irene Aldridge wrote a piece (How Profitable Are ...
1k views

### What books should any quantitative portfolio manager or risk manager have as reference? [closed]

I'm interested to know what are the critical reference texts you rely on for portfolio or risk management? I mean those texts that you come back to because they are chock full of insight and know-how. ...
2k views

### How to combine multiple trading algorithms?

Is it possible to combine different algorithms so as to improve trading performance? In particular, I have read that social media sentiment tracking, digital signal processing and neural networks all ...
849 views

### Rate interpolation in Libor Market Model

Libor Market Model (LMM) models the interest rate market by simulating a set of simply compounded, non-overlapping Libor rates which reset and mature on predefined dates. How do I obtain from them a ...
2k views

### What is a “coherent” risk measure?

What is a coherent risk measure, and why do we care? Can you give a simple example of a coherent risk measure as opposed to a non-coherent one, and the problems that a coherent measure addresses in ...
560 views

### Is it ever possible that---because of illiquidity---exercising an out-of-the-money option is better than directly buying the stock?

Is there a case, where due to illiquidity, exercising out-of-the-money options could be better than directly buying the stock? When a stock is too illiquid, there are some costs because of this ...
3k views

### Is there an all Java options-pricing library (preferably open source) besides jquantlib?

I am looking for an all-java implementation of black scholes, preferably open source. I found jquantlib and quantlib (C++). Any other recommendations? The jquantlib site seems to be down. I'd prefer ...
538 views

### Literature on generating synthetic time series for testing

I have some market data (daily time series) for bond prices and CDS indices and I would like to generate synthetic versions of these which are statistically "similar" for testing trading strategies. ...
1k views

### How to conduct Monte Carlo simulations to test validity of Black Scholes for a specific option?

In reference to the original Black Scholes model, what approach is best to test the model in a rigorous way? Is there a standard approach that can accomplish this in a reasonable amount of time? ...
637 views

### Missing step in stock price movement equations

Assuming a naive stochastic process for modelling movements in stock prices we have: $dS = \mu S dt + \sigma S \sqrt{dt}$ where S = Stock Price, t = time, mu is a drift constant and sigma is a ...
2k views

### Estimation of Geometric Brownian Motion drift

One can find many papers about estimators of the historical volatility of a geometric Brownian motion (GBM). I'm interested in the estimation of the drift of such a process. Any link on this topic ...
716 views

### How to detect structural breaks in variance?

I'm looking for a method to automatically detect structural breaks, I tried Chow test, It works good but it doens't work for breaks in variance. Do you know a test to check strucutural break in ...