1
vote
2answers
372 views

Optimizing Principal Component factor weightings over time

I was given the returns of a cross-asset class portfolio of ETFs and I conducted PCA to obtain factors on dates from T-n, T-3, T-2,..., T. What I would like to do is decompose the market moves from ...
1
vote
1answer
594 views

Lagged dependent variable, yes or no?

I read conflicting opinions about the inclusion of lagged dependent variables in modeling, and I guess it is partly up to the researcher and depending on the scope and goal of the research. I'm ...
2
votes
0answers
122 views

How to reproject rates risk on a subset of tenors

Is there a standard method (statistical or model based) to reproject rates risk obtained on a full set of tenors onto a smaller subset of tenors ? Let's imagine that I got a delta in the following ...
4
votes
0answers
186 views

How to become a registered market maker on an exchange [closed]

We are thinking of applying to become a registered market-maker on different European exchanges. The name varies from exchange to exchange (Liquidity provider on Euronext for instance). Could anybody ...
3
votes
0answers
72 views

How is the redemption right on delisting of underlying shares held by holder in the convertible bond valued?

As title, If there is no delisting constraint, then I can treat the redemption right as the put right on the convertible bond. If there is redemption right on delisting, what is the conventional ...
-1
votes
1answer
270 views

Calculate the total returns from the total return index [closed]

I have the Total Return Index(RI) for several companies. I know that I can calculate the log retunrs with $ln(RI_t/RI_{t-1})$. Therefore my first guess would be to ...
6
votes
2answers
361 views

How to interpret beta meaningfully?

Although this is probably a basic question, this is probably also the right forum to post it in :) I thought I understood beta, but know I am really confused... The beta between my portfolio (weekly ...
5
votes
3answers
191 views

Stochastic volatility model with exponential OU volatility

I have a friend in the industry who said they are interested in the model I gave in the title. Whether they use it, idk. $dS_t= S_t(rdt+ \sigma_t dW_t)$ And $\sigma_t$ is the exponential of an OU ...
1
vote
4answers
259 views

Error message in calculation Implied Volatility

I am unsuccessfully trying to find the Implied Volatilities for the SPX on a given date using information of the CBOE, as well as Open Interest, but as I run the code I am getting and error message ...
1
vote
1answer
413 views

Arbirtage free price process question in Bjork's Arbitrage Theory in Continuous Time

I am currently working through questions in Bjork's Arbitrage Theory in Continuous Time. However, I am unable to solve the following question, 7.2 in the book. A solution would be greatly appreciated. ...
2
votes
0answers
103 views

Best method for determining the market value of a stock before it is issued

I am attempting to determine the hypothetical market value of a stock for a company emerging from bankruptcy as of a date prior to actual the issuance of the stock. For example, let's say the formerly ...
2
votes
1answer
264 views

Are my estimates of parameters of geometric brownian motion correct?

I wrote a simulation of a geometric Brownian motion which works like this: ${ t }_{ i }-{ t }_{ i-1 } \sim Exp(\lambda )$ ${ Z }_{ i }\sim N(0,1)$ ${ Y }_{ i }\sim { e }^{ \sigma \sqrt { { t }_{ i ...
1
vote
0answers
41 views

Weak convergence of Lookback payoff with correction term

In this article on the Multilevel Monte Carlo method on page 8, http://people.maths.ox.ac.uk/gilesm/files/mcqmc06.pdf, Giles uses a correction term to improve the weak convergence rate of the lookback ...
1
vote
1answer
95 views

Compare fund managers with insignificant alphas?

For my thesis I am evaluating two mutual fund portfolios in order to check for differences in manager performance. My hypothesis is that there will be no differences in performance (in terms of alpha) ...
1
vote
2answers
459 views

Machine Learning on matlab 2010

I am trying to develop a trading model. It uses certain technical and fundamental features and the model learns from the past. I have a 3-class output - bullish, neutral and bearish. On trying neural ...
4
votes
0answers
3k views

Difference between S&P 500 index and S&P 500 Total Return index?

There's the standard S&P 500 index (SPX) and the rarer used S&P 500 Total Return index (SPTR). If you compare graphs, you'll find that the latter grows faster. Supposedly, SPTR assumes ...
1
vote
1answer
69 views

ISDA: Interpreting a date specified as x business days prior to another date with a business day convention of 'NONE'

I've got an interest rate swap, it has a right-to-break with a bermudan exercise schedule. For each exercise, the settlement date is specified as an already-adjusted business day. The "last ...
1
vote
0answers
34 views

Does the time between prices created from a GBM affect the estimation of parameters of the GBM?

Recently I created a simulation of a GBM. The time between the prices were sampled from an exponential distribution. The log rate of return was sampled from $\sigma \sqrt { { t }_{ i }-{ t }_{ i-1 } } ...
6
votes
2answers
337 views

how to choose top n assets?

I have m assets, and have estimated their future returns and covariance matrix. I would like to invest in an evenly weighted n product basket from this universe, where 0<n<m. How do i find the ...
2
votes
1answer
77 views

What are the general limitations of Gaussian copulas with regards to the range of joint pdf's it can approximate?

I'm working with the nataf transformation - AkA Gaussian copula - and trying to establish the range of joint bivariate pdf's it can approximate, and what limitations it puts on those joint pdf's. I've ...
1
vote
0answers
124 views

Calculate display and plot relative spread using Sierra Chart

I'm trying Sierra Chart for trading Bitcoin. I would like to display relative spread for a given volume. spread_rel = 200.0 * (ask - bid) / (bid + ask) where ...
1
vote
0answers
113 views

How To Regress Returns Vs Price as Pct of 52 week high?

I would like to do a linear regression of daily stock price returns, vs the price as a percentage of the 52 week high. i.e. [next week return] = A * [Price / 52 Week High ] + B where A and B are ...
1
vote
3answers
912 views

How to trade volatility?

I am analyzing the volatility of financial stock returns and let's say I have a pretty good model to forecast tomorrows volatility of the stock returns. So let's say for simplicity reasons I have a ...
2
votes
1answer
175 views

How did we get $W_g=W_b$ from $\dfrac{U'(W_g)}{U'(W_b)}=1$?

My question is from Nicholson-Snyder's text , E-book here. My question is here, from page 217 of the book. (I can't post image as my reputation is not enough.) How did we get $W_g=W_b$ from ...
0
votes
1answer
332 views

IB with R which package?

I want to implement my models in R and trade according to them with my IB account. Now I am wondering, how I should solve this problem? Do I need to program with C an access ...
4
votes
3answers
680 views

Where to find historical stock news and other events?

So, I am working on a strategy that has pin-pointed some very interesting events in the form of extremely low volatility. The phenomena spans the past few years and a wide variety of symbols. Now, to ...
3
votes
2answers
97 views

What is the difference between these two equations for GBMs?

The two equations commonly found online for GBM are: $\begin{matrix} S_{ t }=S_{ 0 }\exp\left( \left( \mu -\frac { \sigma ^{ 2 } }{ 2 } \right) t+\sigma W_{ t } \right) \\ S_{ t }=S_{ 0 ...
2
votes
1answer
906 views

How to estimate market integration parameter in Singer-Terhaar model for E(r)?

Singer-Terhaar is part of CFA II and III curriculum. It estimates risk premium for some asset, traded at some local market, as weighted average of expected premiums for the case of (1) local market, ...
2
votes
0answers
154 views

How to determine risk-free rate of Ecuador?

I have a question in determining the risk-free rate of Ecuador. For developed countries like United States and Great Britain, the risk-free rate can be obtained in financial database such as Reuter or ...
0
votes
2answers
222 views

How is holding an European call option equivalent to holding an asset-or-nothing call option and writing a cash-or-nothing call option?

The cash-or-nothing call option has a payoff that is equal to the strike price. All three options have the same expiry date.
-1
votes
2answers
260 views

How to compute $\mathbb{E} \left[ (W_s + W_t - 2W_0)^2 \right]$?

The solution to the SDE $$dx_t= -kx_t dt + cx_t dW_t$$ is $$x_t = x_0 e^{\left(c - \frac{k^2}{2} \right)t}e^{-k W_t}$$ with mean $$\mathbb{E} \left[ x_t \right] = x_0 e^{\left(c - ...
1
vote
1answer
210 views

How can I calculate the margin requirements for a Bitcoin futures contract?

Suppose that I want to calculate what the margin requirements should be for a Bitcoin futures contract, where the contract is the USD/BTC exchange rate (settled in Bitcoins). I've looked at the SPAN ...
3
votes
2answers
459 views

Calculating and interpreting cumulative returns is R

I have buy and sell signals,and accordingly, I artificially generate a signal series,for which,I assign 1 to every buy and -1 to every sell: ...
3
votes
0answers
503 views

mean reversion with Kalman Filter - Spread calculation

Ernest Chan in its book "Algorithmic Trading" shows how to use the Kalman Filter for mean reversion pair trading. I have seen that he uses the measurement prediction error for calculating the spread ...
0
votes
0answers
99 views

BS Implied Volatility under Normal returns

If I use theoretical prices under a normal valuation model, and I estimate their implied volatility using BLACK SCHOLES implied volatility, do I'll get corresponding log normal volatility?
5
votes
3answers
778 views

Expected Shortfall (CVaR) Backtesting

I am writing my thesis on VaR and ES risk measurements and have encountered some issues with how to best test the accuracy of ES estimates. My understanding of the topic is that backtesting ES ...
3
votes
1answer
1k views

Drawbacks of Black-Scholes option pricing model

Will highly appreciate if anybody can provide logical financial proof why the Black-Scholes option pricing model overestimates the value for long-term options as described in this paper "Warren ...
1
vote
0answers
260 views

Fixed Income Var calculation

I'm trying to calculate var for a portfolio of fixed income securities. I initially want to just calculate undiversified VaR for each instrument. I'm doing the following for each instrument Take ...
1
vote
1answer
167 views

A Question from “Mathematical Methods for Financial Markets” Chapter 2

Exercise 2.3.1.5: The payoff of a power option is $h(S_T)$, where the function h is given by $h(x) = x^\beta(x-K)^+$. Prove that the payoff can be written as the difference of European payoffs on the ...
3
votes
2answers
188 views

Random Brownian Simulation Startling Results

I was playing around in Excel the other day, simulating possible equity curve/P&L paths for a simple game I designed. The game is really trying to find an optimal risk managment strategy. I start ...
4
votes
3answers
279 views

selecting test data for neural networks

I have been working on a neural network based on certain technical indicators. As people familiar with neural networks would know after developing a hypothesis, the developer is also supposed to ...
5
votes
1answer
174 views

unique equivalent martingale measure in incomplete markets

Do you have any idea about how we can prove, and under which conditions, that an equivalent martingale measure (EMM) in an incomplete market is unique? The assumptions we have made are: 1) that the ...
1
vote
0answers
280 views

Yahoo Finance API

Have been looking for ways to down load stock price data using Yahoo Finance on Chinese Stocks. Symbol that ends with .SS = stock listed in Shanghai, .zz = stock listed in Shenzhen This link ...
2
votes
1answer
1k views

How to prove price of Asian option under geometric averaging is cheaper than a European call?

This was an exam question at Cambridge University. Let $S_t = S_0\exp(\sigma W_t + (r-\dfrac{1}{2}\sigma^2)$ and a bank account returns a continuously-compounded rate of interest $r$. Consider the ...
2
votes
2answers
132 views

ITM Puts under negatively skewed return distribution (volatility skew)

I read Hull (2009) on implied volatilies. I understand that (given a negatively skewed return distribution) an OTM-Put is more worth than under a normal distribution and that a OTM-Call is worth less ...
7
votes
2answers
319 views

Estimation of Empirical Expected Shortfall of a heavy tailed distribution

Assume that you have a portfolio for which you have estimated a parametric model to the underlying instruments, but the distribution of the portfolio as a whole is too complicated to compute ...
2
votes
2answers
286 views

List of 2008 NACE Rev 2 codes

Am looking for a simple list of the NACE 2008 rev 2 codes (The European classifications for economic sectors). The official publication is here, but is there an easily accessible list of the actual ...
2
votes
1answer
466 views

Open source equity/bond index data

I have been using the tseries package of R (get.hist.quote) to get historical quotes for various indices from yahoo finance. I am interested in DAX, VDAX, EB.REXX ...
0
votes
0answers
66 views

Need 24 hours a day real time/slightly delayed prices of futures contracts on US and non-US [duplicate]

I'm looking for a data provider to get real-time/slightly delayed data for futures contracts on US and non-US indexes 24 hours a day. Can you recommend anything for a person, who can't afford ...
1
vote
1answer
59 views

Scaling Intervals in Diffusion Process

I know this is a very elementary question but... when modeling asset prices through a stochastic process as in $$dS_t=S_t μ dt+S_t σdW_t,$$ where the following is a wiener process ...

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