All Questions

2answers
202 views

Optimal Portfolios

In modern portfolio theory, one famous problem is the Markowitz mean variance optimal portfolio, defined by solving $$\underset{\mathbf{w}}{\mbox{min}\,\,}\mathbf{w}^{T}\boldsymbol{\Sigma}\mathbf{w}$$...
1answer
136 views

Delta formula for FX vanilla option

What value do you use for annual dividend yield? It does not apply in case of FX.
1answer
177 views

Filtering out AR(1) effects before using stochastic volatility model

I wonder if I first filter out AR(1) (autoregressive model with lag 1) effects from univariate time series and then fit stochastic volatility model does above procedure introduce any bias at first or ...
3answers
158 views

Black scholes OTC

Let's say you want to find the fair price of a call option. One way is to use the black scholes formula. This assumes you can delta-hedge the underlying asset and the option to eliminate risk, and ...
1answer
79 views

Mutivariate t markets

We know that some markets exhibit marginals well approximated by Student t distributions. But what is the dependence structure? Is the multivariate density really elliptical (as we all wish for) or ...
3answers
169 views

Share Repurchase and Bid ask Spread data

I am doing a Quantitative Finance PhD and would like some insight on data collection. I'm looking for open market share repurchase data (UK) over the past 2-3 decades. Simultaneously, their bid-ask ...
2answers
95 views

How to calculate cash flow for XC swap

Given 3MLibor vs 12MLibor USD basis swap the 3M Libor is exchanged at 12MLibor+1%. How to calculate the cash flow
1answer
210 views

Local volatility pricer

I am testing a local volatility pricer by comparing its results under two settings: Pricing a 5yr ATM call option with a flat volatility of $0.194$ Pricing the call option with the typically shaped ...
3answers
153 views

GARCH parameters

I'm trying to estimate parameters of GARCH(p,q) model. I tried p=1, q=1 with t-distribution errors. Ljung-Box showed no correlation in residuals and squared residual. But the null hypothesis that ARCH-...
1answer
193 views

formulating MVO with costs

I am trying to formulate this simple MVO utility function with a linear transaction cost penalty added using Quadprog in MATLAB tcost = 0.001; lambda = 4; mu = vector of expected returns (say 4x1) S ...
0answers
208 views

Stationarity tests in the frequency domain for regression

Strict stationarity is the strongest form of stationarity. It means that the joint statistical distribution of any collection of the time series variates never depends on time. So, the mean, variance ...
1answer
153 views

Stripping projection curve

What is meant by the statement below: "Stripping projection curve (e.g. 3M curve) given the OIS curve" I understand that while bootstrapping an OIS curve using OIS swap rates and OIS fixed rates, we ...
1answer
112 views

Replicate by Arbitrage price of a forward

Given market(Mid): 1- USD Swap market (fixed for float). Float leg pays 3MLibor quarterly, act360. Fixed Leg pays annually, act360. Market is trading mid at 1.125%. 2- TIIE market. Fixed for ...
0answers
69 views

Price 3m libor autocap with LMM calibrated on 1y swaption data

I need to calculate a price of an autocap contract which is An autocap is similar to a cap, but at most γ ≤ β caplets can be exercised, and they have to be automatically exercised when in the ...
1answer
585 views

What is the difference between market efficiency, market equilibrium, and no-arbitrage?

Aaron Brown (in the book, The Poker Face of Wall Street, p. 196), discusses four approaches to deriving the same Black-Scholes-Merton option-pricing formula: Ed Thorp, Myron Scholes, Robert Merton,...
0answers
152 views

how to apply a simple copula model

I'm playing around with copulas and wanted to generate some sample based on copula techniques in R. For this purpose I applied the following algorithm: Generate three sample vectors coming from ...
1answer
52 views

Is the price of a binary call not monotonous with vol for OTM

Is this true and how would you prove it
2answers
200 views

Is there a better way to price options than with historical volatility?

I know that annualized historical volatility calculated with closing prices is a much rougher estimate than implied volatility for the correct "volatility" parameter in options pricing models. ...
1answer
50 views

Cause of long term inflation in the United States [closed]

Does the US government have a policy of printing money? If so what is this number called, who decides what it is, and where can I find it? If not what is the cause of our long term inflation? (I'm ...
1answer
624 views

Black Scholes - how to calculate delta with a vol skew

I am trying to calculate the delta of an option at different strike prices where the underlying has a pronounced implied volatility skew in order to correctly hedge an options strategy. Researching ...
1answer
198 views

Cobb - Douglas Production Function

let's say that we have complete data on the sample of companies about their capital (K), labor (L) and materials used in the production (M) and the total output of each company. Let's have Cobb-...
2answers
375 views

What is a canonical book or article to learn pair trading?

Can someone suggest a resource with a clean cut explanation of pair trading?
1answer
89 views

Binary option expression

Given r=0, σ(K)=const Binary=lim┬(ε→0)⁡〖((C(K,σ(K))-C(K+ε,σ(K+ε))))/ε〗 What is the analytical expression for the binary option value? σ(K)=const Therefore, Binary=lim┬(ε→0)⁡〖((C(K)-C(K+ε)))/ε〗 ...
2answers
254 views

Normalization of Market Data in Time Series Correlation

Suppose we have 2 time series of market data, one for each security and we want to correlate between these 2 securities. My question is How do we handle gaps of missing data in the time series? ...
2answers
316 views

Kolmogorov-Smirnov test for Generalized Pareto Distribution

I've fitted my data to a generalized pareto distribution as to model the returns in the tails more accurately. The interior is fitted with kernel distributions. I would like to now test whether the ...
0answers
40 views

How to prove following order?

Consider a consol bond, i.e. a bond which will forever pay one unit of cash at $t = 1, 2, . . ..$ Suppose that the market yield $y$ is constant for all maturities. (a) Compute the price, at $t = 0$, ...
2answers
201 views

0answers
27 views

Index tracker and inflation

I'm trying to get my head around how inflation really affects index trackers. I've been looking at this question, but somehow misses the point I want (How To Account For Inflation Over Historical Data)...
1answer
32 views

Returns adjusted for dividends

In various financial models such as CAPM, Black Scholes, one assumes the returns are adjusted for dividends. As I understand it, the share price often (in a relative sense) increases a bit before the ...
1answer
127 views

How to compute daily compounded backtest returns closer to real-world results?

I often run quick tests of trading strategies in my analytics suites by: multiplying a vector of signal (lagged, {-1,0,1}) with a time series of daily percentage returns doing a cumulative product ...
1answer
142 views

Best sources for worldwide balance sheet data?

I’m interested in databases with quarterly balance sheet data of the financial sector. I’m aware of the following datasets: -Compustat -Compustat Global -Bankscope Can someone point out other ...
1answer
129 views

Index creation from multiple time-series and variable weights

I am trying to compose one index out of several (three) indices with variable weights, 50%, 25% and 25%. After normalizing and calculating the log returns, what would be the best way to create the ...
4answers
155 views

Black scholes text book

I am looking for an easy and well presented introduction to Black-Scholes theory and stochastic calculus aimed at undergraduate mathematics students. Please can you recommend a book? How about Paul ...
1answer
341 views

Quadratic exponential method (by Andersen) in Heston model

I am having trouble understanding the reasons that led Andersen to define his QE scheme to efficiently simulate Heston Stochastic volatility model (you may check the celebrated scheme here). The ...
0answers
48 views

Historical list of Primary Dealers in Europe

I would be interested in a list of all the banks and financial institutions that have been Primary Dealers in the European Union from the 1980s until today. For a current list you can check this pdf ...
1answer
222 views

LMM. Calibration to swaptions by Brigo and Morini. Volatility of swaption that matures at T=0

I'm reading Brigo D., Mercurio F. Interest Rate Models - Theory and Practice (Springer, 2006)(ISBN 3540221492) and also a source article on LMM cascade calibration to swaptions by Brigo and Morini. I ...
2answers
528 views

In bond pricing, is negative convexity better than positive convexity?

Say that I have two bonds and one of them has positive convexity and the other negative. Which one is better (assuming that you only care about convexity)? I understand that high convexity is ...
1answer
113 views

Optimization metric that takes into account number of trades vs expectancy

In optimizing my automated trading system I find that certain combinations while increasing the expectancy: ...

15 30 50 per page