1
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0answers
56 views

Max Likelihood via Marquardt Optimisation

I asked a related question here: How to apply Levenberg Marquardt to Max Likelihood Estimation I tried the approach suggested it works for some of the parameters but not the variances. I spoke to ...
1
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0answers
65 views

robust regions in grid search

I have a strategy f that takes parameters x,y (for x,y taking values in integer ranges). I get two grids (of returns and volatility values) from computing f(xi,yi) for integer ranges x1 <= xi <= ...
1
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0answers
58 views

How to convert HJM model risk-neutral measure $\mathbb{Q}$ to real measure $\mathbb{P}$?

HJM model, $df(t,T) = \mu(t,T) dt + \xi (t, T)dW(t)$, is defined in risk-neutral measure $\mathbb{Q}$, according to Brigo's "Interest Rate Models" book. I wonder, how could I transform it to real ...
1
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0answers
62 views

The option values are different from two r package - foptions,rquantlib

The results are very different.I know the code from quantlib and the result of quantlib seem right(close to market price). Is there anyone know why the value from fOptions is so large or fOptions used ...
1
vote
0answers
53 views

VaR mapping - Forward Foreign Currency Contract

I have a question about VaR mapping for FX forwards. Please bear with me while I outline the problem. Philippe Jorion's book discusses VaR mapping; a means to break down complex instruments into ...
1
vote
0answers
49 views

Variable Selection with Kalman Filter

I'm trying to estimate factor loadings on portfolios over time for portfolios that are traded pretty frequently. I have a sense that several portfolios are loading on the Fama-French HML factor ...
1
vote
0answers
26 views

Finding criteria for a household financial budget falsification

I’m working on a financial problem about budget of households. Households in a state fill a form about their net budget in every year and our insurance company investigate their financial status and ...
1
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0answers
112 views

trading strategy outperforms passive strategy in absolute terms, but in returns vice versa. how could this be?

Background: I want to compare two trading strategies in term of profitability. The red one is an active trading strategy, which involves many entry and exit to a specific market. The blue one is a ...
1
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0answers
27 views

What is the main point in the Forward contracts definition?

In Islamic Finance there is a contract called "Salaf" or "Salam" which is similar to Forwards except in time of payment which happens in the entering contract day (exactly unlike the Forwards). Some ...
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0answers
37 views

Existence of a hedging portfolio and martingale property

Lets assume that the underlying follows a Brownian motion and the market has the standard properties of the Black Scholes setting. Is there a way to find a hedging portfolio for every discounted ...
1
vote
0answers
39 views

volume augmented garch(1,1) model in matlab

Actually I want to add volume traded of a stock in my Garch(1,1) model to forecast the volatility.In Matlab I can specify the model as garch(1,1) and then use estimate and forecast commands.But I am ...
1
vote
0answers
24 views

Effect of kernel smoothing on correlation

Instead of deriving correlation matrix on standardized returns (z scores) would it not be more accurate to kernel smooth the cdf and then norminv the cdf values for the return z score and then ...
1
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0answers
30 views

Order 1.5 strong SDE integration methods for systems with diagonal additive noise

I'm looking into simple-to-implement and efficient order 1.5 strong SDE integration schemes for my system. My noise is diagonal and additive (possibly time-varying). Thus methods designed for either ...
1
vote
0answers
35 views

rugarch and rolling estimation

I use Rugarch for a long time in order to calibrate GARCH models on FX rates time series and perform simulations. I am trying to understand the ugarchroll method. However even if I can find plenty of ...
1
vote
0answers
83 views

Pricing binary options with kernel density estimation

Suppose I have a large enough set of prices of an asset, from which I can extract the following function: $f:T\to\mathcal{D}$, where $T$ is a fixed finite set of time intervals (say, 1 minute, 2 ...
1
vote
0answers
112 views

Why is “full” Yield Curve (term structure of interest rates) 3 component based?

I am trying to understand bond-valuation and construction of yield curve. I don't have any exposure to bootstrapping or what-so-ever as of now. So it's appreciated to have an example but not too ...
1
vote
0answers
61 views

Capital Allocation for Portfolio of Multi-Strategy and Multi-Instrument

I would like to know if there is a way (or theory) to manage a multi-strategy, multi-instruments portfolio that would calculate the optimal weight to allocate capital for each combination of strategy ...
1
vote
0answers
41 views

Calculating the Hedge Ratio

Suppose we have an index whose value is calculated by a weighted geometric mean. Now we want to recreate the index using its underlying components. How would we go about calculating the hedge ratios ...
1
vote
0answers
67 views

Adjusting for variance bias when using overlapping data

I'm in the process of constructing volatility cones for several assets and I want to make sure the data is free of biases. I know that using overlapping data introduces an artificial degree of ...
1
vote
0answers
38 views

How to price an option with a “step up” feature using binomial tree?

I have a call option with expiry in two years. In my case the option is bermudan style with first 9 months w/o ability to exercise (i.e. European) and after exercise at any time (i.e. American), but I ...
1
vote
0answers
20 views

Stability of Equilibrium in 2 good exchange economy

Hello I was wondering if someone could help me with the following question relating to the stability of an equilibrium in a two good exchange economy and the Walrasian auctioneer. The setting is the ...
1
vote
0answers
65 views

Bond pricing with HJM simulation

I'm using Glasserman 3.16 and 3.17 algorithm to price bonds. The algorithms evaluates the forward rates and the discount factor $B(0,t_j)$. My question is: How can I price bonds in a future time? I ...
1
vote
0answers
60 views

A question about pricing convertible bond with two different underlying assets

I have a question regarding the pricing of convertible bond. If I value the convertible bond with two different underlying assets, how can I incorporate two volatility and the correlation in the ...
1
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0answers
48 views

Quantitative method to select tactical bands for asset allocation

Do you know a study with a methodology for selecting tactical bands (or the allowed deviation from a strategic asset allocation)? Thanks
1
vote
0answers
61 views

Distribution of Brownian Bridge

I know from Karatzas & Shreve (1991) that a Brownian Bridge $B(t)$ from $a$ to $b$ on time interval $[0,T]$ satisfies: $B(t)=a(1-t/T) + b*t/T + [W(t) - W(T)*t/T]$, where $W(t)$ is a standard ...
1
vote
0answers
54 views

Markov switching model estimation

We are testing Markov switching models to forecast risk regimes, similar to the paper by Kritzman, Page and Turkington. We find that in some cases the Baum-Welch algorithm converges very slowly or not ...
1
vote
0answers
49 views

American Swaption Pricing with PDE discretization

So I am still trying to price an american swaption. (MC approach here: American Swaption Pricing with Monte-Carlo method) I've found in Paul Wilmott, The mathematics of financial derivatives, a PDE ...
1
vote
0answers
350 views

Black Scholes well coded Python

I have some trouble with the following code. Some jump and a decentered path are present but it's not the case, normally for Black Scholes diffusion ! Is anyone see a problem in my code ? ...
1
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0answers
94 views

Derivation of a ML estimator

I have the following likelihood function: I'm given this information about the $\Omega$ matrix ($\boldsymbol{1}$ is a $T \times 1$ vector of ones): I would like to be able to show that the ...
1
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0answers
22 views

Having trouble finding PPI for commodity using NAICS code

Is there a way to find the Producer price index for a commodity during two different years by using the NAICS code of the commodity. For example, I know the NAICS code for cast iron steel bearings ...
1
vote
0answers
46 views

Incorporating a stochastic correlation structure into a multi-factor model

I am considering extending a multi-factor fixed income stochastic model (e.g. LIBOR-Market) to use stochastic correlation matrices instead of determinstic ones. For pricing instruments with short ...
1
vote
0answers
87 views

Credit Spread, Transition Matrix

Consider a credit rating system consisting of three credit states, A, B and D (default) with the following annual credit transition probability: T = [0.7 0.2 0.1;0.2 0.5 0.3; 0 0 1]. For a company ...
1
vote
0answers
132 views

Mock/practice trading for options (delta/gamma hedging etc.)

I know there are some sites for practicing equity investing. But could you provide me with suggestions concerning options trading etc. I read Natenbergs book on Options and want to test things like ...
1
vote
0answers
36 views

evaluating portfolio performance without knowing the amount held on cash accounts

I would like to evaluate the performance of a portfolio mananger. I know his trades, and the initial portfolio holdings. I do not know, however the amount held on his cash account. That is, I ...
1
vote
0answers
39 views

How do I determine what is a separate objective in a multi-objective portfolio optimization?

Is there a general rule to determining when to separate objectives when developing a multi-objective portfolio optimization? For example, one might start with a standard portfolio optimization of ...
1
vote
0answers
40 views

Econometrics - Granger Causality

Suppose we have two time series, if one has autocorrelations and the other is non stationary how do we test whether they Granger cause a returns series?
1
vote
0answers
61 views

What is the algorithm for the Fama-Bliss instrument selection?

Fama-Bliss discount bonds are defined through a straight forward calculation (Famma, Bliss 1987). For the purposes of a project I need to derive forward rates, yields &c. for periods not included ...
1
vote
0answers
106 views

The Public Market Equivalent measure in private equity

What are the advantages and disadvantages of the Public Market Equivalent measure in private equity? Why is it that the volatility of the cash flows do not matter? This topic has been discussed in a ...
1
vote
0answers
99 views

regarding Basel III IRB method for credit risk

Would the exposures between standard method and internal rating based method for credit risk under Basel III remain same?I could not find any documents for IRB approach under Basel III. Is it still ...
1
vote
0answers
62 views

Fitting a sigmoid function to incomplete, structured, data

I have an incomplete data set that looks like this: and I believe that it will continue to form a sigmoid-like shape. How can fit a sigmoid curve to this data given my assumption about what the ...
1
vote
0answers
144 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 ...
1
vote
0answers
32 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 ...
1
vote
0answers
65 views

What is the best way to describe latency?

What are good ways of describe observed tick data latency with a view to flagging when something is systematically wrong? For example, we would want to discount outlier ticks so that we do not alert ...
1
vote
0answers
99 views

Calculating index arbitrage

I have a days-worth of level 2 market data. I am calculating S&P500 index arbitrage. I have a few questions about the calculation: 1) Should I be summing all the bids and asks from the stocks ...
1
vote
0answers
71 views

Recalibrating SABR parameters for Swaption ATM volatility

I understand that the ATM volatility of Swaption moves quite frequently and the SABR will need to be recalibrated. Which parameter should I recalibrate? Is there any financial meanings why we only ...
1
vote
0answers
56 views

Clarifying the way in counting number of weeks for calculating historical weekly volatility in Bloomberg

I would like to confirm the way to counting number of weeks for calculating historical weekly volatility in Bloomberg. Given an option with issue date from 14/1/2014 to 13/1/2019, is the proper way to ...
1
vote
0answers
70 views

Approximating the PDE price of an option with a binomial model

I'm trying to replicate, with a binomial model, the price of an option obtained with a PDE. It doesn't really work, so I was wondering, if there are some caveats when doing that. The PDE model use a ...
1
vote
0answers
161 views

MonteCarlo simulation of stock prices using milstein scheme with dividend yield?

While performing a montecarlo simulation of stock prices using the milstein scheme is it possible to take into account the dividend yield into the simulation itself somehow, if we are given a ...
1
vote
0answers
78 views

A doubt about Evans and Jovanovic (1989) economic model for entrepreneurs with credit constraints

[I already posted this question on the math forum of stackexchange and I was advised that I should post this question here] In Evans and Jovanovic (1989) you will find a model for entrepreneurs with ...
1
vote
0answers
36 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 ...

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