2
votes
0answers
101 views

negative transition probabilities in the heston model

I've been trying to implement a bivariate tree for pricing american options with the heston model in R using the paper of Beliaeva and Nawalkha ...
2
votes
0answers
83 views

Testing Statistical Significance of Various Portfolio Simulations

I'm trying to determine which of my portfolio simulations/backtests if any are good enough to put some money into. I outline an approach below and I'm interested in knowing: What problems are there ...
2
votes
0answers
90 views

Game theory and antagonistic games in trading

In one of the topic here, particularly in the comments, i saw a link to the page describing connection between Antagonistic Games and finances but i cannot find it now and would appreciate if somebody ...
2
votes
2answers
169 views

Predict Futures Prices based on weather + agricultural data

I’m working in the area of Data Mining and have come up with the following idea for my Masters project.The text may not be the best structured but it’s a working draft to give you a quick idea. ...
2
votes
0answers
107 views

Scale of Market Quakes Computation

I would like to reproduce the results in the paper "The scale of market quakes", from T. Bisig, But I am getting stuck at the computation of the Fourier Coefficients in equation (4). They are defined ...
2
votes
0answers
75 views

Beta distribution - Holding period

Let's say I have a risk factor that is defined between [0,1], such as recovery rates. Assuming I have daily data, I can estimate the "daily VaR", i.e. the tails over 1 day period, since the data is ...
2
votes
0answers
31 views

How can I break down the change in value for an inflation-linked bond

I am trying to decompose the change in value of an inflation-linked bond into two constituent parts: 1) That due to changing nominal rates on the issuer's non-linked bonds 2) That due to changing ...
2
votes
0answers
75 views

Practitioner's criterion for MC pricing convergence

Let's say I have some Interest Rates (IR) pricing model which relies on Monte Carlo pricing and I'd like to benchmark its quality and find out optimal settings (time steps & iterations) per asset ...
2
votes
0answers
95 views

State Space models with Short Time Series

My problem is that I have a state space model that I estimate using the Berndt–Hall–Hall–Hausman (BHHH) algorithm. The state space model is relatively simple in that the hidden part follows a pure ...
2
votes
1answer
243 views

Which is the better risk sensitive measure?

Consider the two following optimization problem 1) $$ \min_{\theta} \ln E_{\theta}[ e^{X}]$$ 2) $$ \min_{\theta} E_{\theta}[ X]$$ with the constraint $$ Var_{\theta}[X] <c$$ Is it true that ...
2
votes
0answers
33 views

what kind of test for volatility and where find the data

I am working on a model for stochastic volatility. In short, the model try to capture that the volatility goes up suddenly after a shock (war, policy, financial events, etc) and then goes down slowly, ...
2
votes
0answers
42 views

Testing for the presence of a positive or negative gamma effect

I am currently analyzing a statistic that I believe will have the effect of hedgers having a positive or negative gamma position in certain stocks. In the case where I believe hedgers have positive ...
2
votes
0answers
43 views

Discretization Schemes

I am working with two correlated SDE's and I was wondering if I could use two different discretization schemes for them. Is there maybe a reference of this being done? And can something be said about ...
2
votes
0answers
37 views

Formal Proof of Immunization Techniqu

Please correct me if I am wrong in understanding the Immunisation Technique behind bond interest rate risk management. It says that any change in interest rate can be neutralised by reinvesting the ...
2
votes
1answer
654 views

Johansen Cointegration Test

I just performed a Johansen Co-integration test on two stocks. The results I get are: ans = r0 r1 t1 true false I am using Matlab. Can ...
2
votes
0answers
51 views

Isn't a perfect economic system always in debt? [closed]

Let's say in a simple world, we have 3 persons, a banker, a businessman and a worker. Then we apply the current monetary system in this economy. So for the system to get started, we need a banker to ...
2
votes
2answers
87 views

Ability of hedge funds to transform illiquid assets

In this discussion of a Citi paper, on the impact of collateral management and rising financing costs for hedge funds, there is a quote from Sandy Kaul's statement: Sandy Kaul, head of business ...
2
votes
2answers
264 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
4answers
348 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 ...
2
votes
1answer
415 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 ...
2
votes
0answers
109 views

Johansen-Ledoit-Sornette Model

im trying to predict crash time by using lppl model(JLS). My codes can run, but the error is to high....I try with some other initial values, but still can't reduce the error.....How i can reduce ...
2
votes
0answers
87 views

Simple Forward Interest Rate Proof

Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ...
2
votes
0answers
26 views

How do derivatives affect capital structures?

Yesterday, I was at a lecture where the speaker said that the impact of derivatives was often to make senior debt, in effect, subordinated debt (in terms of priority, recovery rates, etc.)? How do ...
2
votes
0answers
213 views

VaR mapping - Forward Foreign Currency Contract

I have a question about VaR mapping for FX forwards. Please bear with me while I outline the problem. Philippe Jorion's book discusses VaR mapping; a means to break down complex instruments into ...
2
votes
0answers
56 views

Tick Data Poisson Process

I am trying to generate a custom tick index using two indices (Let's say australian index ASX 200 and Japenese Index NKY). Japan index ticks every 10 seconds...and australia ticks every 30/35 seconds. ...
2
votes
0answers
104 views

Which are the popular free/open-source charting controls?

Recently i've tried SciChart and VisiBlox - beautiful charting tools. Is there any free or open-source tools for visualizing charts on C#? Thank you for answers.
2
votes
4answers
184 views

How to model hedge fund returns?

I know that a lot of work has been done characterizing the first four moments of monthly hedge fund returns across a variety of fund types and strategies, and that work indicates that the higher ...
2
votes
0answers
337 views

What's the practical difference between the Johansen vs Engle-Granger tests for cointegration?

For the two-variable case, what are the practical differences between using the Engle-Granger procedure versus the Johansen test for cointegration? Is one universally more powerful than the other? ...
2
votes
0answers
129 views

How to price zero coupon bonds with the Monte Carlo method?

Im trying to calculate monthly ZCB bond prices with a fixed maturity T, over a period of months via Monte Carlo methods. Here is my attempt: For the first month, the price is $P_{t_0}(0,T) = ...
2
votes
0answers
175 views

What equation will convert implied yield volatility to implied price volatility?

I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ...
2
votes
1answer
231 views

What is the hedging underlying of MBS

I am working on hedging agency MBSs using treasury bonds. So my question raise as which treasury bond should more likely be a hedging underlying of a MBS. What is the matching criteria usually for MBS ...
2
votes
0answers
53 views

What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options

versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ...
2
votes
0answers
139 views

What happened to Mountain View Analytics?

I stumbled over Thomas Cover's work on algorithmic portfolio selection; apparently, an outfit called "Mountain View Analytics" attempted to implement the suggestions from Cover's research. ...
2
votes
0answers
80 views

Effective simulation of multi factor Heston model

Im looking for a quick way (as in runs quick, not necessarily is quick to implement) of simulating multiple square root processes for a stochastic volatility model, flexible enough to allow for ...
2
votes
0answers
41 views

Risk neutral measure for jump processes

How can I construct risk neutral measure for option price if active price form is: $$S(t)=S(0)\left[\exp{σW(t)+(α-βλ-1/2σ^2)t+Q(t)}\right] ?$$ Here $W(t)$ is a Brownian motion and $Q(t)$ is a ...
2
votes
0answers
77 views

At-the-money Call Spread approximation

In a trading manual I got during a course, the value of the ATM Call-Spread is approximated by $CS_{ATM}=\frac{1}{2}StrD+(F-m)\times\Delta CS$ The lecturer skipped the part where he derived this ...
2
votes
0answers
199 views

Bond (yield curve) dynamics in the Forward-LIBOR-market-model

The standard Libor-Forward-Market-Models provides a way of modelling the evolution of forward rates in time. However the model does not seem to be well suited for the modelling of zero-bonds. But ...
2
votes
0answers
123 views

Weighted average implied optionlet/swaptions volatility

Let an implied volatility curve/surface is made up by optionlets or swaptions Black's implied volatility. If you wanted to price, say, a FRN with cap and/or floor, a CMS et cetera you would input the ...
2
votes
0answers
138 views

Reference for Algorithmic Trading [closed]

I have recently started to look up algorithmic trading but I am finding it hard to find references related to this field.I am math major with a sound knowledge in Statistics, various programming ...
2
votes
0answers
39 views

How can dividend protection be considered in the binomial model in pricing the convertible bond?

If the convertible bond has dividend-protection, how can we cater it in the binomial model? If there is dividend protection at or above 1%, can we impose input of dividend yield of 1% in the ...
2
votes
0answers
132 views

Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
2
votes
0answers
55 views

Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
2
votes
0answers
68 views

The concept of an incomplete market

While skeeming the relevant literature and web-sites I noticed that mostly the concept of the incomplete market is reduced to the following statement "A market is incomplete if there are more ...
2
votes
0answers
73 views

Triangular Arbitrage formula [closed]

i have 3 currencies AUD, USD and EU I am trying to work out the mathematical formula to work out if there is a spread/arbitrage opportunity as well as the maximum amount that can be conducted ( for ...
2
votes
0answers
209 views

Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility?

From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ...
2
votes
0answers
88 views

Derivation of variance of Zhou (1996) volatility estimator

Does anyone know how to derive the Variance of Bin Zhou's volatility estimator (Theorem 1) in 'High-Frequency Data and Volatility in Foreign-Exchange Rates' (1996) Zhou 1996 Any help would be ...
2
votes
0answers
173 views

Reasoning for Bloomberg's short rate volatilty calculation

Bloomberg, in its documentation, explains that it calculates the short rate volatility for its Hull White implementation by multiplying the e.g. 10y IRS rate (divided by 100) by the 10y cap vol. Why? ...
2
votes
1answer
78 views

Why does my posterior mean differs from Idzorek's results?

I have implemented two different expressions (Idzorek p.6, Walters p.51) of a posterior mean return calculation within a Black-Litterman framework. My results are the same, irrespective of the ...
2
votes
0answers
60 views

Multivariate interpolation for estimating FDM in-between grid points

After implementing some FDM to price some option, there are gaps between our grid points that may be of interest. From reading around, it appears common to use bilinear interpolation to estimate ...
2
votes
0answers
198 views

Funding spread in FVA calculation

For the FVA calculation, is the funding spread (either borrowing or lending) treated as a piecewise constant function (i.e., if the length of the exposure is 5 month and I know the 3 and 6 months ...

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