All Questions

464 views

Simulating conditional expectations

There is a multidimensional process X defined via its SDE (we can assume that its a diffusion type process), and lets define another process by $g_t = E[G(X_T)|X_t]$ for $t\leq T$. I would like to ...
127 views

Simulating property price index

I am trying to write a Monte Carlo simulation to calculate risk associated with some property based products. What is the most reasonable stochastic process to model property price index? Do people ...
384 views

Linear regression and assets direction prediction

I have the following asset returns Y and the predictions for the same periods Y': Y = { 10, 200, -1000, -1, -7 } Y' = { 1, 2, -3, -4, -5 } The OLR R-squared for ...
305 views

How to account for market movement when some exchanges are closed?

Daily data, such as open and close prices, is often available for much longer periods than high-frequency data. However, whenever backtesting any strategy that examines instruments traded in different ...
401 views

How do you estimate the volatility of a sample when points are irregularly spaced?

I was looking again at this question which basically haunts every quant I believe, and I was thinking about the effect of these gaps when computing volatility of the series. Let's define the problem ...
1k views

Time series price prediction and linear regression: using high/low rather than last quotes price

Discrete time series regression models, like ARIMA, are usually built around the assumption that we only have 1 available price for each period t, which I will call the Close. In reality asset time ...
97 views

Function that best describes intensity of human/(group of humans) emotions?

Let me give you couple of examples. You're at a dinner and you order something. You could say: "It's OK" "It's good" "It's great" "It's fantastic" "I've never ate something this good" "Goodlike" ...
656 views

Help With Quant Modelling Software

Im a software developer (freelance) working in investment banking, and I'm looking to improve my CV by gaining a better understanding of the financial quant role and the software used by quants to ...
645 views

Models for measuring insurance risk exposure

I've recently begun working as a quant for a large bank, and one of my first tasks will be to improve the model determining the risk exposure of their insurance portfolio. The portfolio is fairly ...
9k views

How to calculate historical intraday volatility?

Sorry for what must be a beginner question, but when I went to write code I realized I didn't understand exactly how historical volatility, or statistical volatility, is defined. Wikipedia tells me ...
6k views

What does it mean to be long gamma?

When you are "long gamma", your position will become "longer" as the price of the underlying asset increases and "shorter" as the underlying price decreases. source: ...
580 views

Liquidity estimators: VWAP and IS

I am looking for some info on how to estimate liquidity (intraday). I have read some researches and created intraday measurements of liquidity on time yet not on price. What I mean by this is that I ...
490 views

Law of an integrated CIR Process as sum of Independent Random Variables

It is known (see for example Joshi-Chan "Fast and Accureate Long Stepping Simulation of the Heston SV Model" available at SSRN) that for a CIR process defined as : dY_t= \kappa(\theta -Y_t)dt+ ...
481 views

How to create a Stochastic Process through pre specified points?

I want to create a random (quasi random) process which goes through pre determined points and constraints. E.g. I have a daily price series but want to generate intra-day prices with the same OHLC ...
2k 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 ...
873 views

Can momentum strategies be quantitative in nature?

I have read some papers on quantitative trading strategies and it seems like strategies that focus on mean reversion or statistical arbitrage give signals that are dependent on some quantitative ...
582 views

What tools and libraries may be used to model limit/stop systematic trading?

A lot of the tools/libraries out there seem to focus on close to close time series analysis. This is all fine but I typically do not trade close to close, I will use limit or stop orders that may or ...
339 views

What are some quantitative method behind etf vs cash arbitrage?

Has there been any studies done on the correlation between etf vs cash (i.e. GLD vs GD) for example and how they should theoretically move together, and what fundamental reasons could cause them to ...
305 views

performance of historical VaR parameters

An historical VaR measure is parameterized in terms of the confidence level and also number of periods. Specifically, the $\alpha$% T-period VaR is defined as the portfolio loss x in market value over ...
2k views

How to annualize intra-day volatility on minute data?

I am trying to convert minute based volatility into annualized volatility in such a way that both are comparable. $Vol_{min} * \sqrt(t)$ does not seam to get them into the same scale if I annualize ...
278 views

Which approach is better for modeling option exercise strategies, rational or behavioral?

This question is most relevant to the evaluation of embedded options, such as the refinancing option granted to borrowers in the mortgage and bank loan markets, or the call option present in some ...
67 views

What models for backing out Equity IVOL [duplicate]

Possible Duplicate: How should I calculate the implied volatility of an American option in a real-time production environment? I am starting a project and would be grateful for some ...
1k views

What is the market standard for pricing VIX futures?

Pricing of VIX futures is complicated, because it is not possible to use a standard hedging argument to get a value similar to stock futures. What different approaches for pricing VIX futures exist? ...
1k views

How do I adjust a correlation matrix whose elements are generated from different market regimes?

Say I want to calculate a correlation matrix for 50 stocks using 3-year historical daily data. And there are some stocks that were recently listed for one year. This is not technically challenging ...
521 views

How to apply quasi-Monte Carlo to path-dependent options?

Following up on my recent question on variance reduction in a Cox-Ingersoll-Ross Monte Carlo simulation, I would like to learn more about using a quasi-random sequence, such as Sobol or Niederreiter, ...
412 views

How to group timeseries showing similar curve

I am trying to classify similar looking curves of a timeseries and was wondering what is the best algorithm to research. Reading R, it looks like k-means clustering could be applied - but I don't know ...
864 views

What is the precision of standard deviation estimates with small samples?

I was asked today to "quantify" the precision of an estimated the standard deviation from a small sample, I was not sure how to answer. The case is quite simple, I have a sample of $n=25$ measures ...
915 views

How to properly evaluate backtest returns?

Do you evaluate a strategy in a backtest based on the cumulative returns generated by the strategy (i.e. looking at the cumulative returns of the trades that occur) or do you start with a certain ...
324 views

How to reduce variance in a Cox-Ingersoll-Ross Monte Carlo simulation?

I am working out a numerical integral for option pricing in which I'm simulating an interest rate process using a Cox-Ingersoll-Ross process. Each step in my Monte Carlo generated path is a ...
208 views

Modeling interest rates with correlation

I'm trying to model interest rates, and will use the following equation: $dr = \mu r dt + \sigma r dW$ I'm also being told that interest rates are 40% correlated to S&P returns. How can I ...
315 views

How to balance two Forex crosses correctly to do a linear regression?

I have two cross and an account in EUR: EUR/USD GBP/USD I would like to do a balanced linear regression using R. With "balanced" I mean that I would like to normalize it by calculating the ...
516 views

When people say calculate moving average for 30 days include weekends or not? [closed]

This is blowing my mind a little bit, when someone wants to calculate a 30-day moving average of a commodity, do they mean 30 business days, or 30 calendar days? I'm looking for the general ...
151 views

Analysis of Unbalanced Covered Calls

Hello I am doing an analysis on covered calls with and extra amount of naked calls. Ignore the symbol and current macroeconomic events. I couldn't find any reference to this strategy (unbalanced is ...
1k views

How to apply the Kelly criterion when expected return may be negative?

My concern is how to handle a negative value for the Kelly formula. Even when you have a system that has positive expectancy, you can (and usually will) sustain a number of losses, sometimes ...
239 views

Value of option-free instruments with a short-rate model vs the spot curve

You can calculate the value of an option free bond or swap by using the spot curve and discounting cashflows accordingly. Alternatively, apparently you can use a single-factor short rate model in a ...
134 views

Buying one company or index against another, is this readily possible with options, with an accurate return (also Alpha Indexes)

There's a relatively new product in the market / on the Nasdaq called Alpha Indexes. It lets one own a company -- e.g. Apple, GE, Google, etc -- as the difference between how that company does (the ...
216 views

Are there “live” uses of the Generalized Method of Moments or are they all academic?

I see the Generalized Method of Moments suggested in numerous academic papers as a way to calibrate stochastic volatility models. However, any decent trading shop is going to calibrate to observable ...
1k views

How would I value a perpetual bond with an embedded option?

I am trying to work out how to value the following transactions. It should be straight forward, since it breaks down into a series of well known instruments, yet I am not sure how to evaluate it: ...
708 views

Quantlib in JavaScript? [closed]

Is there such a thing? Or is there a project around that aims to realize Quantlib in JS? I'm a JS coder and I'd like to get involved if so. Maybe it seems futile or insane today, but who can doubt ...
224 views

How would I calculate a stop on a pair trade? [closed]

I have a trading strategy that I use on single tickers. I'd like to start using it with pairs as well. However, I'm somewhat math challenged and not sure how to best calculate the stops of the ...
1k views

Performance Attribution : Annualizing alpha & factor return contributions

Let's say I have a factor model which I am using for Performance Attribution. I'd like to separate returns from alpha vs. returns from exposure to various risk factors. For each date, the factor ...
358 views

What is the case for active management?

A recent personal finance question asks when to hire an investment professional? Given that many of us here are on the professional manager side of the business, how would you make the case? What ...
134 views

How do you handle short-term asset allocation with Hedge-Funds?

Assuming I want to run an optimization over a short period, say 2 years, I would decide to take daily values in order to compute the efficient frontier of a portfolio. That works fine as long as I ...
469 views

Links to the risk model methodologies of the major providers?

There is quite a bit of art in constructing an equity risk model. This paper summarizes some of the key decisions: choice of factors, horizon matching, cross-sectional vs. time-series method, 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 ...
219 views

zero-sum active management riddle

Bill Sharpe proves that the average alpha from active management is zero (and after transaction costs the average active manager returns less than passive funds). One active manager's gain is offset ...
853 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 ...
301 views

Given markets usually fall fast and rise slowly, are there trading mechanisms to take advantage of this?

Per a previous question on this topic -- markets generally fall fast and rise slowly: what options strategies or other strategies can one use to take advantage of this common occurrence?