5
votes
2answers
342 views

R package for portfolio

In the context of modern portfolio theory, one often wishes to minimise $\mathbf{w}^{\mathrm{{\scriptstyle T}}}\boldsymbol{\Sigma}\mathbf{w}$ subject to $\mathbf{w}^{T}\boldsymbol{\mu}=c_{1}$, ...
2
votes
1answer
107 views

Density of Geometric BM via Fokker-Planck

Attempting to derive density of a GBM (which we know is log-normal) the long way, using the Fokker Planck-equation. Can't figure out where I went wrong - would appreciate a few sets of extra eyes! ...
1
vote
2answers
401 views

Estimate simple option price without a calculator

I have been to two different interviews for jobs related to option trading, and both time I have been asked a question, which is pretty basic, and still I could not answer it. If you have an European ...
0
votes
1answer
41 views

Order Book vs Wallet Updates

Good morning, i am in the middle of developing my own stock exchange system and have implemented limit orders (basics) matching. The system is just a DIY solution for my own purposes and for fun ...
-4
votes
1answer
56 views

Can not understand options pricing [closed]

As we are seeing here http://www.theoptionsguide.com/strike-price.aspx Relationship between Strike Price & Call Option Price Relationship between Strike Price & Put Option Price I do not ...
2
votes
2answers
134 views

How can I make this portfolio self-financing?

$a_t S_t$ = number of shares ($S_t$ is stock price at $t$), $S_0 = 1$ $b_t \beta _t$ = saving account value , $d \beta_t = r \beta_t dt$, $r=$ interest rate So the value of the portfolio: $$V_t = ...
33
votes
7answers
6k views

Is R being replaced by Python at quant desks?

I know the title sounds a little extreme but I wonder whether R is phased out by a lot of quant desks at sell side banks as well as hedge funds in favor of Python. I get the impression that with ...
2
votes
1answer
234 views

High frequency price forecast model ARMA GARCH or another?

Can you reccomend model for high frequency data (1 second and less) (returns and volatility forecasting)? Most papers use ARMA, GARCH etc in 1 minute and lower time frame. PROBLEM ARMA does not know ...
2
votes
1answer
94 views

Why is the black-scholes model arbitrage free when σ>0?

I want to show that: if $σ$ is positive then there is no arbitrage in the model, even if $r > µ$. Whilst I have satisfied this for $ r > \mu$, I cannot see why the conditioning on $\sigma>0 $ ...
0
votes
1answer
699 views

Negative time value european options

I have a basic question for which I feel like I should have found the answer by googling it, but I didn't get a definitive answer, so here I am: Can the time value for a plain vanilla (European) ...
5
votes
2answers
1k views

Why dynamics of local volatility is wrong?

In Dupire's local volatility model, the volatility is is a deterministic function of the underlying price and time, chosen to match observed European option prices. To be more specific, given a ...
-2
votes
1answer
93 views

Show that the equation solves the Black-Scholes PDE

I have the solution as given Based on this, I have to show that this solves the Black-Scholes formula It means that I should take the partial derivatives of the solution above and then receive the ...
7
votes
1answer
174 views

Why can CDS indices be used as a bond market index?

I don't understand why the iTraxx indices family, which are credit default swap indices, are in practice often used to gauge the bond market. How are CDS prices related to bonds prices? And what other ...
6
votes
0answers
154 views

Computing Value at Risk for portfolio in R

I know how to compute VaR with long positions using PerformanceAnalytics. What about a portfolio consisting in two equities A and B, 100 USD long positions in each, and 2 stock options for the same ...
1
vote
1answer
157 views

Z-Score calculation for a win-loss streak

I am trying to find the correlation between wins and losses by applying Z-Score according to formula attached below. I put them in an array by assigning 1 to wins and -1s to losers. I am trying to ...
1
vote
1answer
125 views

Cointegration tests: how do you accurately test the necessity of time trends in the Johansen and Engle-Granger Test?

Is there a correct and up to date procedure? I just run the equation in VEC form and test the significance of the time trends? What are the possible problems that I should be aware of?
1
vote
2answers
118 views

Why does the short rate in the Hull White model follow a normal distribution?

Consider Hull White model $dr(t)=[\theta(t)-\alpha(t)r(t)]dt+\sigma(t)dW(t)$ when we solve the SDE above we have $r(t)=e^{-\alpha t}r(0)+\frac{\theta}{\alpha}(1-e^{-\alpha t})+\sigma e^{-\alpha ...
2
votes
2answers
149 views

Short volatility strategy using strangles

For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy. Any help ...
2
votes
0answers
48 views

Show that in an arbitrage-free and non-redundant market a certain set is compact

Some notation: We consider a financial market with $d+1$ assets, the $0$-th asset is considered the risk-free asset, the others are the risky ones. The vector $\overline \pi \in \mathbb R^{d+1}$ ...
1
vote
2answers
96 views

Why is volume a totally independent variable from price?

In Martin Pring's book "Technical analysis explained", when talking about volume, he asserts that it is "a totally independent variable from price" Why is this?
2
votes
1answer
115 views

The source of “Cost of hedging” in the Black Scholes model

I am trying to get some intuition for the fact that a Black-Scholes price for an option is equal to the cost of replicating the option. Say the interest is 0. The option is obviously still worth ...
4
votes
2answers
175 views

Fractional Brownian motion

In Mandelbrot(1968)'s paper, the fractional brownian motion, denoted by $B_{H}(t,\omega)$,(t>0) is defined by $$B_{H}(0,\omega)=b_{0}$$ ...
2
votes
1answer
92 views

Why Variations of order higher than two vanish for Brownian motion?

Let $W_{t}$ be a Brownian Motion. Verify that variations of Brownian Motion of higher order, say, of order three, vanishes. I try to prove that ...
7
votes
3answers
955 views

Application of Control Theory in Quantitative Finance

I have recently completed an MSc in Control Systems from a top university. It seems to me that control theory must have an application within quantitative finance. I would like to apply my degree ...
1
vote
0answers
94 views

Filtering my own orders from a UDP multicast market data feed

I am wondering what is the policy practiced by most exchanges from different market segments (FX, equities, futures, etc.) about the privacy implications of order identification in their market data ...
2
votes
0answers
33 views

Budget Constraint in Duffie's book

On Page 5 of Duffie's Dynamic Asset Pricing Theory, the budget-feasible set is defined as: $$X(q,e) = {e+D^T\theta \in R_+^s:\theta \in R^N, q\theta \leq 0}$$ Compared to Kerry Back's presentation of ...
0
votes
1answer
100 views

Building a personal computer for automated trading/analysis…what bottlenecks could I run into?

I've been trading forex and programming (I'm in college), but want to get into automated trading and analyzing data real-time to make decisions (and learning more about stats and math as a hobby). I ...
1
vote
2answers
153 views

Clean EOD global Equities data provider for backtesting investment strategies

I'm trying to find a good source for global equities for EOD data (historical and forward basis), currently using Bloomberg's back office data, but it is very hard to normalize it for corporate ...
1
vote
2answers
190 views

A good way to calculate the realised daily volatility

Currently, I am confused about the calculation of realised daily volatility. Assume I have daily returns, for example, FTSE, then I need to estimate the daily realised volatility. I read some ...
3
votes
3answers
165 views

For $B_t$ a Brownian motion what is the probability that $B_1>0$ and $B_2<0$?

Let $B_t$ be a Brownian Motion. What's the probability that $B_1>0$ and $B_2<0$?
1
vote
1answer
313 views

Zero coupon bond pricing under Extended Hull & White

How do you price zero coupon bond in extended Hull & White model by solving the Bond Pricing Equation??
1
vote
0answers
664 views

How can I convert Yahoo Ticker Symbols into ISIN Codes?

I have a list of all Yahoo Ticker Symbols and I want to convert them into ISIN Codes. I have been researching and found out that finance.yahoo in the US does not ...
2
votes
2answers
49 views

Leverage on ETF the same effect as on portfolio?

While we know that leveraged ETFs do decline in value to zero given infinity, can we also say the same with our portfolio value if we use leverage in our trading activity and seeing our portfolio ...
2
votes
1answer
103 views

Martingale Measure for Vasicek process

First, under Black-Scholes we have the usual method to transform the discounted asset price into a martingle: Let the asset price $S_t$ be goverend by $$ dS_t = \mu S_t dt + \sigma S_t dW_t, $$ so ...
2
votes
1answer
128 views

How is the Order priority of an Iceberg order decided?

Typically, markets guarantee a FIFO order of priority of execution for various orders at the same price. I want to know does this hold true for Iceberg orders? for eg Order1 = Buy 100 Quantities @ 2 ...
1
vote
1answer
112 views

Pricing call option

Question: The price of a stock is 100. With equal probabilities, it either goes up to 130 or down to 70. What is the price of a 1 year call option with exercise price 100. Risk free rate is 5%. ...
0
votes
1answer
80 views

Volume or Volatility?

I've recently been given a project which came with some documentation. In this documentation is a bullet point that reads: Liquidity Risk in Equity, Credit and Vol I'm unsure as to whether vol is ...
1
vote
0answers
41 views

Why is TransactTime not required on ExecutionReports? [closed]

A couple of my brokers are not sending tag 60(TransactTime) on Canceled messages. What is the rule of thumb for determining cancel time when tag 60 is absent from a Canceled message? Canceled ...
1
vote
0answers
71 views

B-S Put Option Formula: Derivation using expected value under Q

I have been working on an old problem in one of my finance classes and, since no solution has been provided and I won't be able to contact my teacher anytime soon, I was hoping I could ask you guys to ...
0
votes
0answers
53 views

Regressing NYSE returns: Lagged intercept term & efficient market hypothesis

By performing the following OLS time series regression, $y_t$ = $\beta_0$ + $\beta_1$*$y_{t-1}$ + $\beta_0$*$y_{t-1}^2$ + $\epsilon$ I cannot reject the null hypothesis that b1=b2=0. However, ...
1
vote
0answers
76 views

Cointegration and variance of time series

Given that $X_t , Y_t$ are two cointegrated random processes, what can we say about the relationship between variance of the two increments $var(X_{t+h}-X_t)$ , $var(Y_{t+h}-Y_t)$ for a given ...
2
votes
1answer
87 views

Systematic Views in Black-Litterman?

Are there any literature on selecting systematic views for Black-Litterman along with methods to specify the uncertainty parameter? For example, rather than specifying a portfolio manager's subective ...
2
votes
2answers
179 views

Forex trading scenarios - calculating units

I'm trying to build an automated forex trading system and I'm trying to understand how to calculate the number of units I should specify for each trade in different scenarios. Say for example I have ...
2
votes
1answer
2k views

S&P 500 total return since 1956

I'm looking for monthly data of the S&P 500 total return since 1956. I have looked into Bloomberg and Datastream, but it looks like there are data only from 1988.
0
votes
2answers
89 views

Short Volatility [closed]

Being net short options is an obvious case of being short volatility. But what other investments are "functionally" short volatility? Is long equities long or short volatility? Is short Apple long or ...
1
vote
1answer
42 views

Portfolio Selection formulation

I was just wondering why in http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1601412 on page 22, the constraint (48) is a strict equality for the minimum variance formulation. Whereas in a different ...
3
votes
1answer
236 views

Why is the volatility smile important

One thing I can't understand clearly is why there is so much focus on the volatility smile. Given my knowledge of the Black and Scholes model, this is what I get: People use the volatility smile as a ...
1
vote
3answers
137 views

Direct use of implied volatility

I am not sure to understand exactly the direct use of implied volatility. Let's take an example: if an instrument has a daily volatility of $\sigma$, there is a 68% probability that its value will be ...
2
votes
1answer
80 views

remove seasonality in future contracts

very new to commodities. I have raw agriculture future data, and I need to remove the seasonality (de-seasonalize) from the data, what is the general approach ? Thanks for the help!
4
votes
2answers
91 views

When would dedicated portfolios do better than 'immunized' portfolios?

We just learned about cash-matching through dedicated portfolios (using risk free bonds) in my class that concerned mathematical programming. However, in an aside one of the notes said: It should be ...

15 30 50 per page