# All Questions

191 views

### Non-Negativity of up-factor and down-factor in Binomial No-Arbitrage Pricing Model

Consider a stock which is trading at $S_0$ at time $t=0$ and is expected to be trading at price $uS_0$ or $dS_0$ at time t=1 where $u$ and $d$ are up-factor and down-factor. The theory says that to ...
334 views

386 views

### How to find optimal look back in quant trading models

I'm in the process of building a quantitative trading model, I want to improve on the way in which I decide upon a look back length for the indicators. I understand the different pros/cons for very ...
230 views

### Should I analyze the tick data day by day?

Let assume that we have one month of tick data which were traded at NYSE. We want to model the price changes as a function of the last p lags of price changes and the last q lags of the time duration ...
2k views

### What happens when bond price is less than the recovery rate

I am simulating various price path of bonds, and one issue that came up is the recovery rate. When a bond defaults, the amount you get back recovery rate * principle. This creates a problem if the ...
463 views

### where to find historical option prices?

I have a dataset of options (traded in European exchanges such as NYSE Euronext) and I would like to find their price history. Where to find it? I see that ...
451 views

### Some clarifications on eigenvectors and eigenvalues from PCA

Could somebody tell me whether suggestions in bold true or not? Q # 1: http://www.math.nyu.edu/faculty/avellane/AvellanedaLeeStatArb071108.pdf ...
258 views

### reference question about portfolio optimization

I know the "classical" modern portfolio theory. However I have quite a lot of different sources. It seems that there is not a book which cover this topic in a rigorous way: theory application ...
366 views

### How to deal with extreme cases in normal random numbers generation?

In order to generate normal random numbers, one usually generates random numbers following a uniform distribution $Z \sim \mathcal{U}(0,1)$ and then applies the reverse CDF function on them ...
86 views

### Opposite of Tail-Risk Hedge (Established Vocabulary)

I'm working on a client memo explaining several approaches to equity hedging, and I'm looking for a not-too-technical term for a hedging strategy where I try to keep options near the money, as to have ...
767 views

### How to price a Swing Option?

I'm working in the commodity market and I've to price Swing Options with MATLAB, preferably with finite element. Has anyone already priced these kind of derivatives? I'm thinking about using the ...
565 views

### How to get Geometric Brownian Motion's closed-form solution in Black-Scholes model?

The Black Scholes model assumes the following dynamics for the underlying, well known as the Geometric Brownian Motion: $$dS_t=S_t(\mu dt+\sigma dW_t)$$ Then the solution is given: ...
288 views

### Comparison of multicurve calibration methods

It seems that there are mayor softwares around offering a multicurve framework based on bootstrap. I find this puzzling nowadays, given the distinct advantages of best-fit optimization methods and ...
9k views

### Worked examples of applying Ito's lemma

In most textbooks Ito's lemma is derived (on different levels of technicality depending on the intended audience) and then only the classic examples of Geometric Brownian motion and the Black-Scholes ...
48 views

### Questions related to the banking crisis during the European sovereign debt crisis

I am studying the European Sovereign Debt crisis and I have the following questions which I am struggling to find examples for: 1) I have heard that during the sovereign debt crisis, European ...
807 views

### Does Modern Portfolio Theory align with EMH?

I came to the conclusion that in literature Markowitz' Portfolio Theory is believed to be compliant with the Efficient Market Hypothesis. The weakest form states that the current price fully ...
293 views

### Historic Value at Risk - Ratios vs. Differences

Quick Summary on Historic VaR Let $S_0,...,S_n$ be the daily values of some stock (where $S_0$ is the current value). Then for $i=1,\ldots,n$ we let \hat r_i:=S_{i-1}/S_i \quad \text{and}\quad \hat ...
1k views

### Calculate bond yield in python

I want to run the newton method on a large dataset to calculate bond yield. Below is the code I created using a loop. I need to run it on ~50 million lines and the loop is quite unwieldy. Is there a ...
152 views

### How is the price of a bond actually determined?

How the price of a bond is actually determined? Is it the supply-demand that determines the price first and then the YTM is calculated on the back of this for that bond. Or is it that the changes to ...
9k views

### How is PnL calculated

In Fixed Income, I know that bonds PnL are evaluated depending on where the price lies on price/yield curve at the end of the day, compared to where it started from at beginning of the day. The ...
943 views

### Handling Missing values in stocks returns when estimating the co variance matrix

What is the best way to handle missing values when stocks did not exist for the entire historical period?.
528 views

### Arbitrage free implies complete market?

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition It seems that to show that the model is complete, we must show that the claims are reachable. That is, we ...
144 views

### Pricing Principle 1

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this Pricing Principle. Is the one in red supposed to be the proof of the Pricing Principle 1? Or merely an intuitive ...
101 views

### forecasting crash time of KLSE index (1991-1994)

Price deviation = financial bubbles. i try to fit the following stock price index to predict recession. I couldn't fit the model with the data(Data are not available in yahoo finance for the ...
310 views

### ETFs have lower tracking error than Futures?

I used the daily returns of SPX Index, SPY US Equity, and SPA Index. I then calculate their standard deviation as hedging instruments with respect to SPX Index, i.e., (spx_ret - spy_ret) or (spx_ret - ...
317 views

### Logic behind Gordon Growth Model in a DCF analysis?

Sorry, I wanted to ask this on the finance/money forum, but they don't support LaTeX there. Let's say we are valuing a company using the DCF methodology with a 5-year projection period. We project ...
546 views

### SVCJ (SVJJ) Duffie et. al Model implementation in Matlab

I'm attempting to implement aforementioned SVCJ model by Duffie et al in MATLAB. so far without success. It's supposed to price vanilla (european) calls . parameters provided, the expected price is: ...
121 views

### How to construct a deterministic trading model based on a loess (local regression) model?

Given data that has been fit to a loess model, can you make reliable decisions on future trades given a good past fit? Has anyone here done so and can give an example of their use case? I am yet to ...
42 views

### (Purchased) terminology on Net Preferred Equity Issued

I understand what we mean when we say: Net Preferred Equity Issued it is the total amount of Preffered Stocks plus their price. But does the chart mean when it says (Purchased)? What other can it be? ...
676 views

### Difference between Total Long Term Debt and Net Total Long Term Debt

What is the difference between Total Long Term Debt and Net Total Long Term Debt? Below you can see a picture revealing that they are not equal.
79 views

### Interpretation of equation derived from the delta of a call European call option

I have started reading an introductory book called: A Course in Derivative Securities by Kerry Back. On page 12 they mention the following: The delta of the call option is \$\delta = (C_{u} - C_{d}) / ...
2k views

### Sharpe Ratio - my own calculation differs from Yahoo finance, Morningstar

I am trying to compute the Sharpe ratio for my portfolio. To check that I am doing this correctly, I am first trying to compute it for SPY (the S&P 500 index). ...
121 views

### why people want to get a continuous time series from futures data?

So for the backtesting , is it necessary to make an adjustment for the last day of the current contract and the first day of the next far contract? Even if there's is a gap, that's the actual price, u ...
81 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 ...
221 views

### How to get permanently growing chart within PCA

I looked onto different questions and answers about application of PCA on this site and found this interesting article : ...
2k views

### Technical analysis in Python - source of knowledge

I did my best, but I could not find answer for this one - is there any good and in-depth source of knowledge about using Python for technical analysis ? Obviously, there are plenty of tutorials, blogs ...
1k views

### Why Ito calculus?

Coming from physics, I am used to the fact that the Ito interpretation of most natural stochastic equations is wrong, and one should be using Stratonovich calculus instead (of course they are ...
64 views

### Break down XIRR to different segments

Currently, I have the following transactions. ...