4
votes
1answer
80 views

Calculate mean variance portfolio

I am trying to calculate the mean variance portfolio using the plug-in approach. First I generate some artificial data: x <- replicate(10,rnorm(1000)) Then I ...
0
votes
0answers
28 views

How to form Decile Portfolios based on Liquidity measure with missing data in R

I have a dataframe with over 4000 companies data (as column) and have calculted their daily Quoted spread measure ( measures liquidity for each stock) for 15 years. And then from the daily have ...
0
votes
0answers
36 views

Observing bid-ask bounce in high frequency stock data

I have a series of 1-minute return data for an unnamed stock, a sample is provided below, in order: ...
-1
votes
1answer
60 views

Why does the Sharpe ratio not change when the strategy is leveraged?

It has been correctly stated that the Sharpe ratio of a strategy does not change when it is leveraged. I understand Eric's point that leveraging by $n$ multiplies both the return $x$ and volatility ...
2
votes
1answer
71 views

Option analysis

Assume zero dividend and that the strike price for a European call option on a stock at a fixed maturity T and strike price K is given by C(K).Suppose that $C(K)=e^{-k}$ for all $K\geq 0$ ,then, I ...
7
votes
7answers
688 views

Proof that no trading system always wins

I am pondering on the existence/impossibility of a trading system (or algorithm) that ALWAYS ends up winning money, no matter how the price of a futures moves. In a context where one can go long or ...
0
votes
2answers
69 views

Volatility of EUR/USD: is this correct?

Let x be the closeBid price of EUR/USD, sampled every 5 minutes during year 2015 (historical data). This is the variation (is it ...
3
votes
6answers
179 views

Intuitively speaking, why do at the money options have no volga/convexity?

I was wondering if someone could give me an intuitive explanation as to why the vega of at the money options doesn't increase with volatility. I've seen some mathematical explanations showing the ...
5
votes
2answers
90 views

Calculating probability of Yuan's slump from options market

http://www.bloomberg.com/news/articles/2016-01-06/if-options-traders-are-right-the-yuan-s-slump-is-far-from-over Contract prices indicate a 79 percent probability that the currency will weaken ...
1
vote
2answers
168 views

Barrier option : Monte carlo simulation

I am trying to price a Down-and-Out Call using Monte Carlo simulation. The problem is that I get the right price for the vanilla option (same price as the analytic formula of Black and Scholes) but I ...
1
vote
1answer
60 views

Calculate VaR for a liabilty taking a exponential distribution?

An insurance company faces the liability loss off $L = \begin{cases} 0, & \mbox{with probability } 0.75 \\ Z, & \mbox{with probability } 0.25\end{cases}$ where $Z\sim Exp(\mu)$. I want to ...
1
vote
0answers
33 views

Avellaneda/Cont model Order Book Model

The model given in the following paper by Avellaneda et al http://people.stern.nyu.edu/jreed/Papers/limitorder.pdf On page 7 he explains that the initial Bid and Ask size should be normalised by ...
8
votes
3answers
268 views

Why is there a stong intraday-correlation between spot and vol?

Fig.1 shows an intraday scatterplot of the DAX future against its volatility index VDAX on 6-Jan-2016. The data suggest a strong negative correlation between the two. There are various models ...
2
votes
1answer
48 views

Estimating volatility from high frequency price volume data of multiple stocks

I have price volume data of five stocks, sampled at 1 minute interval for six months. The data is quite noisy, lots of missing data and also some weired spikes. Can someone suggest me how to clean ...
0
votes
0answers
16 views

Mean reversion in seasonal ARIMA model

Hi I'm looking for some help deriving the half life from an ARIMA model. My current best model candidate is (1,1,0)x(1,0,0)[4] and I'm a little confused on this. I've read up on HL for AR(1) models ...
1
vote
1answer
85 views

Books on financial instruments?

Can you please tell me some good books to learn in detail about all financial instruments available in the market today ?
1
vote
1answer
37 views

Calculating Portfolio Returns Across Sectors

I have a table of asset (mutual fund) returns and the percentage that each asset is in a particular stock sector: ...
1
vote
1answer
81 views

Black Scholes Geometric Brownian Motion Option Pricing

I'm doing a past paper for one of my masters modules and I'm stuck on this and I have no idea how to tackle such a thing. It's worth 30% of the exam so would be great if anyone here has any ...
0
votes
0answers
42 views

Asset allocation and GARCH models

I am trying to solve an asset allocation problem and I am having some troubles grasping the concept. I am working with excess returns on 4 stock indices and I am obtaining the excess returns forecasts ...
8
votes
2answers
155 views

Why aren't the Fama-French 3 factors orthogonal to each other?

I am confused whether the factors in a multi-factor model should be orthogonal or not. Google searches do not give a well documented answer and I couldn't find one in our library's limited catalog ...
3
votes
1answer
33 views

Valuation of option on amortized IR swap

I'm currently valuing swaptions using an implied volatility surface and Black's formula. This formula is given by $$A (S\Phi(d_+) - K \Phi(d_-))$$ where $$ d_{\pm} = \frac{\log\left(S/K\right) \pm ...
3
votes
1answer
118 views

Which Algorithmic trading library would you recommend for trading Bitcoin?

I am starting to do Algorithmic trading in cryptocurrencies using Python libraries. Most exchanges have RESTful API that make it easy to write you own code and get started. However, I would like to ...
3
votes
1answer
69 views

VAR of portfolio containing options, equities and forwards

If we want to calculate VAR of a portfolio using variance covariance matrix (delta normal method), containing equities, forwards and options, how do we treat each asset class for making the variance ...
3
votes
0answers
61 views

Duality of callable bond price

I am trying to understand the relationship between two methods of pricing callable bonds in the risk-neutral pricing framework. Problem statement Let's consider zero-coupon bond with face value 1, ...
0
votes
0answers
17 views

Extracting mean reversion and incorporating into formula for general series

I'm looking to derive a general formula for margin reversion like Hussman has done in this article for some projections I'm doing. http://www.hussmanfunds.com/wmc/wmc100802.htm I'm not interested in ...
0
votes
1answer
33 views

How to compare Sharpe Ratios of different investment strategies (holding periods)

I am doing the momentum analysis and am trying to see, what strategy (based on trading frequency) yields the highest Sharpe ratio for different investment amounts. The trading frequencies I use are ...
4
votes
2answers
108 views

Geometric Brownian Motion - increasing simulations or smaller step size

I am running Monte Carlo simulations to estimate future share prices of some stocks. For stock A, I need 1 share price exactly one year from now. For stock B, I need daily prices for each trading ...
1
vote
1answer
49 views

AmericanOptionImpliedVolatility strange answers for calls IV's

My data provider includes the greeks. I tried to compute the IV's myself using RQuantLib and see if they match -- for Puts it's generally close, for Calls however certain values are way way off -- any ...
1
vote
1answer
56 views

Option Chain Implied Volatility Calculation

I have the following EOD options data for the SPY containing IV data for each strike. ...
2
votes
2answers
70 views

Problem with deriving the dynamics of a process

I'm trying to solve the following problem. Given a process $X_t$ and a process $Z_t$, with the dynamics of $X_t$ as $$ dX_t = (\alpha + \beta X_t)dt + (\gamma + \sigma X_t)dW_t $$ and $Z_t$ defined ...
1
vote
1answer
91 views

Geometric Brownian Motion: d(S) vs. d(ln(S))

I am quoting from "Tools for Computational Finance, 5th Edition" [Seydel]. I wonder whether the histogram of simulations of the first (yellow) SDE makes sense... especially given that Seydel ...
0
votes
1answer
69 views

AmericanOptionImpliedVolatility - root not bracketed issue in QuantLib/R

I'm trying to compute an implied volatility -- I am trying to match real data I see in Yahoo finance which shows an IV of about 27%. My call in 'R' for the same params returns a root not bracketed ...
0
votes
0answers
34 views

Simulated bond index returns based on term structure changes

The J.P. Morgan European Monetary Union Index (EMU) 5-7Y (which is rebalanced monthly) currently (1-Jan-16) has the following characteristics: ...
0
votes
0answers
32 views

Forecasting conditional variance using fGARCH

I am forecasting the conditional standard deviation using ARMA(1,0)-GJRGARCH(1,1) in R using the fGarch package. Here is a sample code: ...
0
votes
0answers
26 views

Portfolio Analytic Metrics for Portfolios with Serially Correlated Returns

I just read Andrew Lo's paper from 2002 "The Statistics of Sharpe Ratios" and am wondering if anyone knows of any other papers/docs/resources that explore the impact of serially correlated returns on ...
1
vote
1answer
195 views

How to answer this interview programming question about drawdowns?

I saw this question as an interview, and to be honest, I have no idea what it's even asking for: Write a function (in R or Python) that finds the stock drawdown which will trigger a rebalance, ...
2
votes
2answers
87 views

What are the canonical global-macro investing books?

What is a good reading list for Global Macro investing? What does Bridgewater, Bervan Howard, Soros, AQR etc. use to teach their staff about macroeconomic investing? Let us assume a top-class ...
1
vote
1answer
79 views

Portfolio of sum of two Bachelier processes

Suppose you construct a portfolio of two stocks, whose values $A$ and $B$ are modelled as a Bachelier process: $$dA = \sigma_A dW_A(t) \text{ and } dB = \sigma_B d W_B(t).$$ Each of the stock prices ...
0
votes
1answer
44 views

What is the source of the money in a leverage transaction?

An example: I have 1000 dollars, the leverage is 10x, and one stock is 10$. In casual situation I could buy 100 stocks, because I have 1000 dollars, but if I use the leverage I can buy 1000 stocks. I ...
0
votes
1answer
70 views

Does presence of arbitrage necessarily make all derivatives have zero value?

Spin-off from: Pricing when arbitrage is possible through Negative Probabilities or something else I mean in a theoretical sense: If we have a particular market model with some fancy assumptions such ...
0
votes
0answers
13 views

Credit vs Non Credit OTTI

i am wondering if anyone can guide me through calculating the credit vs non credit components in OTTI. in 2 quarters..in first quarter neither asset suffers impairment..at end of second quarter, i ...
-1
votes
1answer
28 views

What is the difference between book value per share (BVPS) and earning per share(EPS)? [closed]

Hi I was reading about book value of a company and the book value per share and couldn't figure out the difference between book value per share and earning per share. Are the two even related?
2
votes
3answers
110 views

What are the canonical books on optimization methods?

I am looking for some literature devoted to optimization methods in finance (portfolio optimization, asset pricing etc). Could you please recommend some books (perhaps, essentially non elementary: I ...
2
votes
4answers
76 views

Do stocks move up and down in value or in proportion to how much they cost?

Do stocks change in value or in proportion to how much they cost? If a stock costs 100 dollar will it generally change value at the same rate as a 700 dollar stock (IE: both will move about 2 dollars ...
3
votes
0answers
37 views

Estimating factor returns with linearly dependent loadings

Given an $n\times 1$ vector of asset returns $r$, and a $n\times k$ matrix of factor loadings $X$, we can express the asset returns in terms of as-yet-unknown factors $f$ using $$ r = Xf + \epsilon ...
0
votes
1answer
31 views

Convex risk measure and a coherent risk measure?

A coherent risk measure is: $\rho(\lambda X_1+(1-\lambda X_2))$ How can it be shown that everey convex risk measure is indeed a coherent risk measure? I assume that it is enough to show that a ...
2
votes
2answers
89 views

Augmented Dickey-Fuller Test/ Unit Root test on multiple time series dataframe in R

I have a dataset/dataframe in which I have calculated the daily log returns of five thousand companies and these companies are as column as well. I want carry out ADF test on this dataframe. I have ...
0
votes
0answers
28 views

In what situations would cross validations scores be inaccurate?

I'm trying to fit a SVM model on times series stock return data, predicting a buy, hold, or sell signal of the stock. I'm using 10-fold cross validation (using the R package ...
1
vote
2answers
46 views

Value-at-Risk “hiding risk in the tail” and diversification?

I have a question regarding Value-at-Risk and diversification? When one says that VaR "hides the risk in the tail", does one mean that if we for instance look at VaR at level p=0.05 say, we might get ...
3
votes
5answers
145 views

Why don't real-world probabilities affect the price of a call in a 1-step binomial model?

I was a bit hesitant to post this question because it seems so basic...but I wasn't able to figure it out on my own. Say we setup a one-step binomial tree with $S_0=100$, $S_u=110$ and $S_d=90$, ...

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