1
vote
1answer
112 views

Pre-trade evaluation and risk assessment of option trading strategies (in market practice)

When a trader gets conclusion of the volatility is being underestimated (via volatility cone or some other technology), actually there are multiple ways for his trading. (Let's assume the underlying ...
3
votes
1answer
75 views

Beta and the Assumption of IID Returns

For two stocks that are independent and identically distributed (iid), do they have the same beta? Does the number of data points matter?
0
votes
0answers
39 views

How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
0
votes
0answers
52 views

Modeling the Option Volatility Skew

The volatility skew often changes based on multiple factors, such as moneyness of the option, time to expiration, movement in the underlying instrument, etc.. How does one best model the skew? Is ...
2
votes
0answers
42 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 ...
0
votes
1answer
112 views

Asset-or-nothing Option Valuation in the Black and Scholes model

In standard Black-Scholes Model, compute the price of an asset-or-nothing put and asset-or-nothing call options. Write down the put-call parity relation between the asset-or-nothing call and put ...
2
votes
0answers
53 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 ...
5
votes
2answers
171 views

Algorithmical replication of a profit and loss function using different options

I often see questions like "Given this payoff graph (example below), construct a portfolio that replicates it." I want to know if there is an efficient method/algorithm to find the individual pieces ...
3
votes
2answers
88 views

Effect of interest rate on options prices

This might be another basic derivatives question. When interest rate rises, stock prices generally fall. Assuming an option's underlying is a stock, this should lower the option's price as well. ...
15
votes
3answers
805 views

What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...
0
votes
0answers
26 views

URL with SEC data

Do you know a URL where i can find the CIK of a listed company PLUS ON THE SAME URL the filing dates of 10-Q or 10-K documents? So i can create this url ...
0
votes
0answers
29 views

how to collect tips amount during GDP calculation?

Let's say Tom had lunch in a restaurant and paid \$50 for the bill, he also give waitress Mary \$5 as tip. \$50 would be calculated as the service industry while calculating GDP, there's bills to ...
2
votes
1answer
87 views

Best practice approach for calculating the PE-ratio

I am trying to calculate the historical PE ratios of a stock, but which date should I use to get the stock price in calculating the PE ratio? My current approach is to use the stock price of a day ...
4
votes
2answers
117 views

Plain Vanilla Interest Rate Swap

I'm trying to build an intuitive understanding of the following $\textit{The price of the replicating portfolio at time $t$ of the floating rate receiver is}$ ...
1
vote
1answer
119 views

How to hedge a forward contract

I was asked this in an interview and I messed it up lol. This might actually be really basic. Let's say I signed a forward contract to buy NASDAQ at 4000 one year from now. How can I hedge this cash ...
1
vote
2answers
176 views

Sharpe Ratio, annualized monthly returns vs annual returns vs annual rolling returns?

I would like to calculate the Yearly Sharpe Ratio on MSCI World index I have monthly values of the index that falls back up to Jan/1970, hence about: 44 years, 528 months In order to calculate ...
3
votes
1answer
154 views

What return equation is Engle referring to in his Nobel lecture?

Engle comments in "Risk and Volatility: Econometric models and Financial Practice" that If the price of risk were constant over time, then rising conditional variances would translate linearly ...
2
votes
0answers
90 views

What's the link between EURIBOR3M futures volatility and rates volatility?

If I am not wrong, EURIBOR3M futures with maturity $T$, whose price is $F_{T}$, are quoted like contracts which express the underlying forward rates, $r_{T}$, as $$r_{T}=\frac{100-F_{T}}{100}$$ Now ...
2
votes
0answers
49 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
1answer
43 views

How come the existence of ARCH effect is not a violation of Random Walk Hypothesis 3?

An ARCH (autoregressive conditional heteroscedastic) (1) model is: $r_t=\mu +a_t$, where $a_t=$return residual, and $\mu$ is the drift of the stock return $a_t=\sigma_t\epsilon_t$, where ...
0
votes
0answers
49 views

What is the arbitrage opportunity in Arrow-Debreu One Period market Model

The one period market model is made of 4 securities(A, B, C, D) and has 4 future states. Assume the market model is complete. and the state prices are (-2, 2, 4, 8). Given that I dont know the payoff ...
1
vote
2answers
216 views

Bloomberg Alternative for Quant Fund

Is there an alternative to Bloomberg for someone who only needs historical data (stocks, futures, indices) as well as what Bloomberg calls 'reference data' - i.e. what is the multiplier of ESU4, what ...
1
vote
2answers
63 views

Reading XBRL Data from the SEC FTP SITE

After I ftp into the SEC Edgar site (ftp.sec.gov) I am able to pull the appropriate financial statements (i.e., 10-k, 10-q, 8-k, etc.) onto my local computer. However, when I go to open these files, I ...
0
votes
1answer
38 views

What is shorting a asset that has negative price. Can anyone give me an example?

What is shorting a asset that has negative price. Can anyone give me an example?
3
votes
1answer
72 views

Time-Varying Volatility and Conditional Likelihood

Engle's comment in his seminal paper "Risk and Volatility: Econometric models and Financial Practice" mentions that I had recently worked extensively with the Kalman Filter and knew that a ...
1
vote
0answers
27 views

How do bond futures affect effective rate when used to hedge a bond's duration?

I'm trying to wrap my head around what happens to the net interest received when an invester goes short a bond future to fully hedge the duration of his long position in an actual bond. Does it ...
0
votes
1answer
39 views

S&P's Sovereign Ratings: Clarification on Definitions and Symbols

Similar to a question I asked earlier on, but I am now looking at S&P's sovereign ratings. Here, as in the case of Moody's, a few things are unclear to me in terms of the definitions used by ...
0
votes
0answers
27 views

swaps valuation

I am asked to solve the marking to market value(MtM) of a swap, unfortunely i´m having big troubles finding the solution, it´s a 5.5% (vs. LIBOR) 10-year swap, The notional is 500 mio USD and LIBOR ...
3
votes
1answer
135 views

Moody's Sovereign Ratings: Clarification on Definitions and Symbols

I'm working with sovereign ratings at present. With regard to Moody's there are a few things unclear to me in their definitions. Both questions refer to the sovereign rating history in Bloomberg CSDR ...
0
votes
0answers
22 views

Transaction costs of lending and borrowing

What are the transaction costs of lending and borrowing? How financial intermediaries reduce transaction costs of lending and how they reduce costs of borrowing? Thank you!
8
votes
3answers
661 views

Is there an intuitive explanation for the Feynman-Kac-Theorem?

The Feynman-Kac theorem states that for an Ito-process of the form $$dX_t = \mu(t, X_t)dt + \sigma(t, X_t)dW_t$$ there is a measurable function $g$ such that $$g_t(t,x) + g_x(t, x) \mu(t,x) + ...
2
votes
0answers
74 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 ...
3
votes
0answers
59 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
34 views

Minimum Variance Hedge Ratio in Binomial Framework

In order to find the minimum variance hedge ratio when holding a portfolio of vanilla call options and hedging with stock, you can do an OLS regression. In a binomial model framework, given ...
0
votes
1answer
76 views

Pricing options with two assets

I'm studying for a test and am stuck on this practice question: With interest rates equal to 0, two different stocks $S_1$ and $S_2$, both valued at \$1 today, can be worth \$2 or \$0.50 at some ...
3
votes
2answers
95 views

How to Calculate a Monte Calo VaR estimation error

I'm performing a Monte Carlo to calculate value at risk (with a 3 dimension risk factor) Now, I would like to calculate the error of the estimation of the VaR with respect to the number of simulations ...
3
votes
1answer
114 views

what was the quant role in the 2008 crash?

this is a complex topic that interests me, have researched myself, & is debated heavily in the media and there is lots of writing, even entire books/documentaries. maybe somewhat surprisingly, ...
3
votes
0answers
154 views

How are quants able to verify whether their calculated prices are any good

This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ...
0
votes
1answer
38 views

How does buying back stock affect a company's credit spread?

How does buying back stock affect a company's credit spread? Would it cause it to get smaller? Any clarification would be appreciated.
3
votes
2answers
159 views

Price an option and find a replicating portfolio

I got stuck on the following question whilst learning about basic option pricing. A stock is valued at \$75 today. An option will pay \$1 the first time the stock reaches \$100 in value, which it ...
0
votes
3answers
206 views

What are some of the best quantitative finance websites? [closed]

Not looking to start a debate. Just want to learn more about the field and am looking for some websites with high quality, informative content.
0
votes
1answer
96 views

where can i get data for foreign exchange order flow

I need data for my thesis research on liquidity of foriegn exchange for order flow (aggregated daily) per currency traded for a period over the last 10-15 years. help!!
1
vote
2answers
89 views

Practical equity options pricing

To price a vanilla option, the following information are required : Strike price; Underlying price; Volatility; Maturity; Dividends rate; Repo rate; Interest rate; The strike, underlying price, ...
1
vote
2answers
197 views

Risk management of options

Your client would like to buy a digital call option. the digital call option pays the buyer in one years time (i.e at maturity ) N=1m SGD, if the SGD USD spot rate at maturity is above a prescribed ...
0
votes
0answers
23 views

How to rightfully balance the share of the organization between departments after variable changes?

This is an abstracted version of the problem I'm facing and I have to tell you first, my question might not be precise and or even correct, so I hope you understand and in that case can improve the ...
2
votes
1answer
73 views

Summary statistic for the average probability of default?

I have the following scenario: Let $X_i$ denote the event where some institution $i$ 'defaults' (don't worry about the exact definition of a default here, it is not relevant to the question at hand). ...
2
votes
3answers
80 views

how to back out levels from a forecast of differenced series

I have a non-stationary series of bond yields $x_{t}$ that are logged and differenced $$y_{t}\equiv ln\left(x_{t}\right)-ln\left(x_{t-4}\right) $$ From that, I get a series of forecasted values ...
4
votes
0answers
78 views

Finding the dynamics of a dividend paying asset under arbitrary numeraire

Assuming I have a dividend paying asset $S$ with dividend process $D$. Now I would like to use the bank account process $B$ as numeraire and determine the dynamics of $S$ under the the corresponding ...
1
vote
1answer
140 views

Directional View of Volatility

What is an option strategy that someone could employ to simply go long/short volatility?? Assuming I want 0 delta(0 gamma if possible) risk in my option position, how do I take a directional view on ...
1
vote
2answers
112 views

why is the BNS model the way it is

what I am puzzled about is, why dont we instead of having \begin{equation} dX_t = \sqrt{V_t} dB_t - (\frac{1}{2} V_t^2-r-\lambda\Phi(\rho)) dt - \rho dZ_{\lambda t}\nonumber \end{equation} we just ...

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