# All Questions

125 views

### Basket option density in BS model

Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is $X_t\sim{LnN(µ_x, σ^2_x)}$, $Y_t\sim{LnN(µ_y, σ^2_y})$ and $Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$ ...
189 views

### Measuring and proxies for leverage in the financial system

It can be argued that the leverage - reflected by how much collateral people or firms need to put down to borrow and might lose if they fail to pay the loan back - used in the financial system is one ...
162 views

### Black-Scholes in Delphi [closed]

when trying to implement the Black-Scholes formula in Delphi, I've found this: http://www.espenhaug.com/black_scholes.html I've checked the results against option-price.com and found they are ...
690 views

### How to calculate VaR/CVaR for private equity, hedge fund, and alternative investment portfolios?

What is the best method for calculating VaR/CVaR for private equity, hedge fund, and alternative investment portfolios? I have only historical monthly return for them.
67 views

### Liquidity and Prices

Do fewer transaction costs and higher liquidity relate to lower market prices? Are there any good resources that deal with these topics in more detail?
283 views

### Smoothing Term Curve

Assume that we have current month term curve and the curves from the two previous months. The current curve may be shifted from the average of the previous two curve by some value (a parallel shift). ...
305 views

### Time-varying correlation via state-space representation and Kalman filter

Let a linear time-varying mode like this one: $y_{t}=\alpha_{t}+\beta_{t}x_{t}+\epsilon_{t}$. You can also suppress the constant term to simplify this example: $y_{t}=\beta_{t}x_{t}+\epsilon_{t}$. ...
240 views

### Modified Duration of Overnight Index Swaps

Is the modified duration of an overnight index swap zero or close to zero?
330 views

### What is the significance of Relative Risk Aversion

I know that the relative risk aversion is defined as $$R(c) = cA(c)=\frac{-cu''(c)}{u'(c)}$$ where $u(c)$ denotes the utility curve as a function of wealth $c$. But I do not understand the intuition ...
375 views

### Why is the mean time-dependent in the Hull-White interest rate model?

In the Vasicek interest-rate model, the interest rate reverts to a constant mean. This makes sense to me. In my conception, the mean ought to be time-invariant, since interest rates don't follow an ...
179 views

### Trend in Cointegration relationship

I was estimating a long-run relationship of exchange rate and purchasing power parity. The residual of the long-run relation which should be $I(0)$, but it is only $I(0)$ when I introduce trend in ...
1k views

### IMM dates in excel

I need to get the IMM dates in excel. IMM dates are defined as the third Wednesday of every March/June/September/December.
73 views

### Real value of small numbers of shares of company stock

What is the real value of a single share of company stock? Let's ignore the "the value is what someone is willing to pay for it" angle. At some point, there has to be a real inherent value to ...
181 views

### How do you handle order tracking (without unique Lot ID's)

Hypothetical Trade: I buy 10,000 shares of ASTC using a broker API. The order is filled in 4 similar lots; ...
597 views

### Does Fama French Three Factor Model Work out of Sample (after 1993)?

Does anyone know if the Fama-French three factor model has been re-examined empirically after 1993, when the original paper was first published? I am asking because there seems to be considerable ...
590 views

### Backtesting - can you buy/sell at open and closing prices?

In backtesting (nasdaq stocks), I make the assumption that I have the ability buy/sell each day at the opening and closing prices. Is this realistic?
6k views

### Derivation of the tangency (maximum Sharpe Ratio) portfolio in Markowitz Portfolio Theory?

I have seen the following formula for the tangency portfolio in Markowitz portfolio theory but couldn't find a reference for derivation, and failed to derive myself. If expected excess returns of $N$ ...
338 views

### options pricing using vwap

This is a question about why options prices do not take volume into account. The popular option valuation formula "black-scholes" certainly does not account for this and I don't suggest that it does. ...
117 views

### how to make a distribution model tolerable of trend?

I'm building an model on different loans' NPL rate. The problem is NPL rates are always affected by the market. When NPL rates move in trend, my model will fail the back-testing. Assuming $x(t)$ is a ...
164 views

### Estimate weekly, yearly quantities from finite samples

I'd like to estimate from a daily prices serie $P_t$ with $N$ observations a quantity such as the variance of the weekly returns. I will use $\ln\left(\frac{P_{T+5}}{P_T}\right)$ assuming 5 days in a ...
157 views

### Converting time series returns into euro

I am trying to convert various series of returns into one currency (euro). I saw from aprevious post that soemone suggested using conversion factors, where would I find these? Also, given that the ...
92 views

### Why is there no closed-form equation for XIRR?

Everything I have read about XIRR (e.g., as calculated in Excel) says that there is no closed-form equation and it must be calculated by iterated approximation. Could someone give a brief ...
101 views

### Do some option pricing models allow for misspecification and what does it mean?

This is to some extent a theoretical question and maybe we can work together to produce some input and output. Diverse option pricing models are reported to be misspecified in various studies. One ...
121 views

### Calculating company-level market capitalisations from share quantities and values

I want to calculate company-level market cap values for stock exchanges listed by Bloomberg. I gather this can be calculated as the product of share price and the total of shares in circulation. But ...
168 views

### A question on Ito

If we know the dynamics of $S$, then we can estimate the value of $S$ at a time point, $t$. Here, I have a question concerning how to solve for $S_t$ by Itô because I obtained different results by ...
373 views

### Order book depth views preferences: order-by-order vs. total aggregated volume by price levels

Which is best? Or is it irrelevant? Hi! Considering Level 2 Data (Market Depth), I want to understand the advantages to have all the order book on an order-by-order basis (or tick-by-tick basis) ...
46 views

### Is there a different test to check stationarity? [duplicate]

I am using the KPSS test to check stationarity of a financial time series. I would like to know if there is another test to confirm the stationarity. Any advice?
377 views

### Shrinkage Estimator for Newey-West Covariance Matrix

I like to apply the Newey-West covariance estimator for portfolio optmization which is given by $$\Sigma = \Sigma(0) + \frac12 \left (\Sigma(1) + \Sigma(1)^T \right),$$ where $\Sigma(i)$ is the lag ...
471 views

### Black--Scholes hedging argument

I'm trying to understand the standard hedging argument to derive the Black--Scholes PDE. There's one aspect of the derivation which I can't get passed and I'd be very grateful for some clarification ...
359 views

### Value-at-Risk formula when using skewed-t distribution

I am trying to find a formula for the skewed-t VaR. For example the VaR formula for a t-distribution is  \sqrt{\frac{df-2}{df}} \times \Sigma{t} \times \mbox{quantitle}(t-\mbox{dist}, 0.01) + \mu ...
1k views

### How to calculate return rates with negative prices?

I'm dealing with electricity options and I'm considering the possibilty of negative prices. I want two estimate the historic volatility. However, an arithmetic mean doesn't feel appropriate and ...
168 views

### Statistical Power and Active Management

I was reading an article recently that pointed out the dangers of using statistical inference in evaluating active managers as the power of statistical tests diminishes with the variance of the ...
456 views

### Valuation of a Sinking Bond Fund

What would the schedule of payments be for a bond with a sinking fund? I know how to price a bond but how does the sinking fund play into it? ...
323 views

### How to most optimally perform currency conversions when backtesting on portfolio level?

I am currently expanding my own strategy profiling and testing platform which partly consists of a portfolio backtesting module. The backtest engine processes tick based data (quotes for currencies, ...
242 views

### How does out-of-sample option pricing work in practice?

When estimating in-sample option prices, one usually estimates the structural parameters $\theta_t$ using all information up to time $t$, and then prices the option at time $t$ using the obtained ...
367 views

### How to look for fractals/harmonics patterns in time series?

I want to build trading systems based on two things: 1)Fractal Theory 2)Harmonics Pattern I have read the book : The Misbehavior of Markets: A Fractal View of Financial Turbulence By Mandelbrot ...
239 views

### Question on an approximation in pricing formula

I am reading the book An Introduction to Financial Option Valuation. The following on page 58 makes me confused: For the formula: \$\exp \left\{ -1.96\sigma \sqrt{t}+(\mu-0.5 \sigma^2)t ...
188 views

### DCF Zero Coupon Bond

Using a 30/360 day count what is the exact formula to discount this single zero coupon bond? ...
699 views

### fetch from yahoo! finance database - varying number of ticks

To test a model with real-life data, I used the fetch-function in matlab to connect to the database of yahoo! finance. My code to try and get 7 different assets' returns is the following: ...
381 views

### Definition of risk factors for market risk scenario testing

I am doing a research for stress testing in market risk. The usual process I found out for scenario testing is: Define risk factors upon the portfolio Define the desired scenarios Vary the risk ...
103 views

### right benchmark for an incompletely diversified international portfolio (for a CAPM): MSCI World or MSCI ACWI IMI?

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
74 views

### different amount of information on return correlations from shorter and longer periods?

I want to calculate annual excess returns on portfolios using monthly (total) returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on ...
1k views

### how to chain monthly excess returns into annual?

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
291 views

### comparing total returns from various data vendors

I need to use various data sources to cover all of my data, and I am concerned by the discrepancies in total returns. Data vendors were helpful, but their simple documentation did not help resolve why ...
3k views

### How to tune Kalman filter's parameter?

I plan to use Kalman filter to estimate saving account amount. However, I'm a bit lost at how to tune the filter's parameters. Taking as the example from the Wikipedia page, basically there are ...
80 views

### Total number of currency transactions [closed]

All of the Forex volume/transactions are always reported in total dollar amount. I am interested in the number of individual trades. Where can I find this? Granularity doesn't matter, ...
817 views

### 30360 Daycount Count Convention to find NPV for Bonds

Using a 30/360 day count convention, how can you value the NPV of these cash flows and the discount factor? I know how to discount cash flows but how does it differ using a 30/360 approach? What is ...
2k views

### Cointegrating relationships - Johansen in R

I read the posts, How to interpret results of Johansen Test? and How to interpret the eigenmatrix from a Johansen cointegration test? But still I am quite confused by the output. I have a project with ...