1
vote
1answer
60 views

Option delta - Conditional probability definition?

Can someone help me interpret this definition of delta? Delta is a conditional probability of terminal value (St) being greater than the Strike (X) given that St > X for a call option. Is the ...
1
vote
1answer
71 views

Quanto/Compo adjustments - Product of two geometric brownian motion

Let's say I have two processes $X_t =X_0 \exp((a-\frac{1}{2}\sigma_X^2)t +\sigma_X dW_t^1)$ and $Y_t=Y_0 \exp((b-\frac{1}{2}\sigma_Y^2)t +\sigma_Y dW_t^2)$ and I then multiply them together (like ...
0
votes
0answers
9 views

model to predict variable evolution [migrated]

Suppose that I have a set of variables X1 X2 and X3 that explain the evolution of a ...
0
votes
0answers
20 views

Quantlib xll - Converting deposit/swap curve to zero curve

I am trying to create a spreadsheet using the Quantlib xll to convert deposit/swap rates to zero rates. I tried to implement such by referencing to the C++ code listed here: How to sum interest rate ...
1
vote
1answer
26 views

Why NYSE is not included in TAQ data for NASDAQ listed companies?

I am using TAQ data to see from which exchanges bids (or asks) are coming. I have got this for AAPL (Apple company, listed in NASDAQ) for a sample day: ...
0
votes
0answers
11 views

Daycount Actual/Actual AFB example

This question is about the following example in Wikipedia about time factor using the Actual/Actual AFB daycount. Assume that the $t_1=\text{28 Feb 2004}$ and $t_2=\text{29 Feb 2008}$. There are ...
0
votes
1answer
44 views

SABR Calibration: Normal vs Log-Normal Market Data

This question is about getting some clarification as to how to understand market quotes for normal & log-normal vols together with certain model assumptions. So let us define ...
0
votes
1answer
71 views

approximating fBm stochastic integral

Suppose I have the following stochastic integral: $$\int_a^b f(t)dB_H(t)$$ with the term $dB_H(t)$ a fractional brownian motion with associated $H$ parameter. Is it true that for $H \in (1/2,1)$, ...
1
vote
0answers
55 views

How to choose a GARCH model which delivers iid standardized residuals?

For my thesis I first need to examine nine financial time series and fit a conditional volatility model such that the obtained standardized residuals ($z_t = \epsilon_t / \sigma_t$) are approximately ...
5
votes
2answers
160 views

Where to find good notations to teach investment portfolio maths?

I don't know whether this question is in order here. I do a bit of teaching and I am preparing my own notes but I thought that his should not be necessary. In which book/pdf on the web can we find a ...
0
votes
2answers
78 views

Accuracy Rebonato Swaption Approximation Formula among Different Strikes

Can somebody explain me if the Rebonato swaption volatility approximation formula is accurate for only ATM strikes, and if yes why? Can it also be used for ITM and OTM strikes? My foundings: Let $0 ...
5
votes
2answers
89 views

Is the money market account (MMA) numeraire and the forward measure equivalent?

Suppose we have a risk-neutral measure $\tilde{\mathbb{P}}$. The money market account is given as $M(t) = e^{\int^t_0 R(s) ds}$, while the price of the zero-coupon bond at time $t$ that matures at $T$ ...
0
votes
0answers
18 views

RWA Calculations Formulae

I am working as IT developer for one of the investment bank and I have recently joined and it is completely new domain to me. While I am still learning about this domain, what I was looking for short ...
2
votes
1answer
39 views

Need advice about distributed backtesting architecture [closed]

We are working under complex enough distributed trading system where several components will run on different physical machines. Unfortunately, I'm stuck on part backtesting part. Originally we was ...
0
votes
1answer
44 views

How to determine portion of portfolio's risks from components?

Say I have a portfolio of 3 stocks $A,B,C$ with $\mu_A = 5%$, $\mu_B = 10%$, $\mu_C = 15%$ and volatility $\sigma_A = 10%$, $\sigma_B = 15%$, and $\sigma_C = 25%$. Let us also say that correlations ...
0
votes
0answers
30 views

Adding negative EV position to portfolio for diversification?

Say I have a portfolio of expected return $10%$ and volatility $20%%. If I have another asset that is either one of: Negatively correlated Positively correlated Uncorrelated With negative expected ...
3
votes
0answers
49 views

On the reflection of a stochastic integral

Let ${(I_t)}_{t\geq 0}$ be a stochastic integral defined by $$ I_t=\int_{0}^{t}\theta_sdW_t, $$ where $W$ is a standard Brownian motion defined on $(\Omega,\mathcal{F},{(\mathcal{F}_t)}_{t\geq ...
2
votes
3answers
53 views

What does it mean for an option strategy to be leveraged

Probably a newbie question, but what do traders mean when they say that an option strategy is leveraged ? And when can we say that it is the case ?
0
votes
1answer
60 views

Mathematically: How does increasing the number of assets reduce idiosyncratic risk?

As part of an Asset Pricing Module I'm currently taking, whilst looking at APT Ross (1974), we looked at how according to this model, risk originates from both systematic and idiosyncratic asset ...
0
votes
1answer
35 views

How can I compute zero coupon bond prices from dirty/clean prices of coupon bonds?

I am having problems with computing zero-coupon bond prices. The question is the following: Today is $t$=14.4.2016 and I know dirty and clean prices of coupon bonds expiring at maturities: 4.7.2016, ...
0
votes
0answers
22 views

How to fit model implied forward curve with market forward curve for Ornstein-Uhlebeck?

I have a spread option model of 2 correlated Ornstein-Uhlenbeck commodity prices that I estimate the parameters of with Maximum Likelihood. What is the formula for introducing the additional ...
3
votes
2answers
32 views

The relation between exchange rate SDE and respective interest rates

The exchange rate between a domestic currency money market and a foreign currency money market can be expressed as $$ dQ(t) = (r_d - r_f)Q(t)dt + \sigma Q(t)d\tilde{W}(t) $$ where $r_d$ is the ...
3
votes
0answers
61 views

Interpolation of forward zeros-coupons bonds simulations for missing maturities (ESG data)

I have a set of economic scenarios simulated with Barrie and Hibbert ESG. The stochastic model for interest rates used is Libor Market Model Shifted. I am facing a problem with zeros-coupons prices. ...
0
votes
1answer
19 views

short selling with collateral accounting

I don't know how the accounting works for short selling with collateral: For example if a stock is \$10 a share and turn out to be $15 a share a week later. At time 0, you borrow and sell 10 shares ...
1
vote
0answers
17 views

Calibrating and simulating returns from a t-distribution

A slight twist (I hope) on the familiar problem of simulating log returns from a t distribution. My two questions concern calibration to sample data. First, one can infer the degrees of freedom in the ...
0
votes
0answers
19 views

Thompson Reuters TRBC and GICS

I can retrieve the components But I would like 2 retrieve the Index RIC by the sector scheme Code for Both GCIS and TRBC. I would really like 2 get my hands on the components for the Dow Jones sectors ...
2
votes
0answers
75 views

Problems with a Black-Scholes modified equation

I haven't really studied much financial mathematics until about 2 months ago so I'm quite new to this stuff, so I'm sorry if this is a trivial question. At the moment I'm trying to work out what the ...
0
votes
1answer
37 views

trading strategy problem - initial capital x buys S over time [0,T] at the constant rate of x/T euros per unit of time

I am looking for clarification to the trading strategy problem where the number of stocks is depending on time. In the Market with zero safe rate and stock dynamics defined as ...
0
votes
1answer
45 views

Why do we assume quadratic utility in portfolio theory?

In my text (Investments by BKM), the investor's mean-variance utility (given as $U = E[R] - \frac12A\sigma^2$) is stated to be the objective function we wish to maximize. Upon further digging, it ...
1
vote
1answer
29 views

Is this representation of the put-call parity correct? (Implied dividend estimation)

I am looking at implied dividend yields to be obtained from the put-call parity and have come across the following answer: Implied dividend estimation It states that $$ PV(div) = P - C + (S - K) + ...
0
votes
0answers
19 views

Validation of an outright bid/ask computation

Given that the spot USD/CAD (for example) is $1.6120/25$ and six month forward swaps are $27/26$. What would the outright price be? I notice that bid of swap is larger than ask, that implies that is ...
3
votes
2answers
225 views

Understanding the solution of this integral

The following integral represents an expected value of a geometric brownian motion for $S_T>K$ (i.e. part of the Black-Scholes call option price): $$\int_{z^*} ...
0
votes
1answer
24 views

Why is the Risk Free Rate 1 over Contingent Claim Prices?

Reading Asset Pricing by John Cochrane (2005), in his second chapter he defines the risk free rate as: Rf = 1 / sum [pc(s)] Where pc(s) are state contingent claims, where s is the state of nature ...
1
vote
2answers
42 views

Implied Volatility as proxy for instantaneous volatility

In many papers and book I have found a reasoning that it is well summarized in this paper as "The first proxy we use is an unadjusted Black-Scholes proxy in which the implied volatility of a ...
0
votes
2answers
51 views

Multivariate Ito problem $M_t=\frac{X_t}{Y_t}$

I am analyzing a problem given in the lecture slides published here (Slide 7-8 Example of Multivariate Ito’s Lemma). Can anybody explain how the $M_t$ was calculated out of the Ito formula. I ...
0
votes
1answer
48 views

Which close price should we use for machine learning?

I am building a machine learning model using historical prices and I am using data from yahoo finance. Currently yahoo finance data have two close prices one normal close price(close) and other ...
0
votes
2answers
38 views

Overpricing Bermudan swaption using Shifted LMM

I am trying to model a callable range accrual note linked to the EUR CMS spread, 20Y-10Y, with cap and floor. The note is Bermudan, callable starting year 3, every 3 years till maturity at 30 year. We ...
3
votes
1answer
39 views

Fees on derivatives

Since it's obviously not at their fair value that derivatives are priced, how do investment banks compute the fees that they add on top of the risk neutral price ?
-2
votes
1answer
24 views

calculate 6 month change in TED spread

I have a basic question if someone could help me out how would I calculate the 6 month change in TED spread. I have a monthly time series of TED spreads.
0
votes
0answers
14 views

Where can I find CMS swap trading prices?

I am writing a paper about CMS swap. To do so, I'd like to compare different theoretical pricing methods of these instruments to the "real prices" i.e. prices used in the marketplace. But I don't ...
0
votes
0answers
43 views

measuring portfolio performance using monte carlo simulation

I have a financial portfolio comprising standard asset classes such as equities, bonds, and commodities. I developped a strategy (optimized) and I include it in the financial portfolio. I want to ...
1
vote
1answer
203 views

how can we know the residual return will be uncorrelated with the market return

I was reading that if we know a portfolios beta we can break the excess return on that portfolio into a market component and a residual component. ...
3
votes
0answers
39 views

Interplay of statistical factors (PCA) and market factors (value, momentum, low vol, …)

Is there any research done on the interplay between statistical factors (as a result of principle component analysis PCA) and the market factors (especially value, size, low vol, momentum, quality)? ...
1
vote
0answers
31 views

calculating long short portfolios currency exposure

I have calculated the currency exposures of a long short portfolio simply by summing the weights of each stock. However I was told that I need to incorporate the dollar borrowing (short dollars), I ...
3
votes
3answers
45 views

Perpetual American Put Supermartingale property

Discounted price process of an american put (perpetual) has a $dt$ part in it, which is negative if the price at time $t$ is less than the optimal exercise price. This is the only thing that drags the ...
2
votes
0answers
28 views

Ledoit-Wolf, expected order of optimal shrinkage intensity

I have a question regarding the optimal shrinkage intensity derived in the Ledoit-Wolf method. Specifically, I'm referring to their version concerned with the target defined as the single index factor ...
0
votes
1answer
91 views

How to work out the forward outright price from the bid/ask quotes?

I'm facing this problem: Spot AUD/USD is quoted at 0.7634/39; six-months swaps are 112.1/111.1; at what forward outright rate can a price taker sell USD value spot/6 months? On the spot ...
1
vote
2answers
32 views

How do companies forecast revenue and earning estimates for a quarter or year in advance?

I'm sure there are models and they have low and high estimates. But how to do they decide on the percentage growth? A bit of art + science?
0
votes
2answers
31 views

Combos on close SPX

I am wondering if anyone has any information on how combos on close trade. I've been looking at the BTIC (http://www.cmegroup.com/trading/equity-index/btic-block-trades.html) and was wondering if ...
0
votes
1answer
35 views

shifted SABR - ATM vol

quick question guys. I know that for Shifted SABR (or any other Shifted model), we simply model the underlying price process (lets say the forward interest rate F), as F' = F + x, x being the shift. ...

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